National Treasury Cabinet Secretary Henry Rotich.

Kenyans should not not expect any significant surprises on the allocation of funds across the sector priorities, Kenya Business Guide says.

Following the trend in previous budgets, allocations have focussed
on priorities identified by the Vision 2030 and broken down into the respective medium-term plans.

“The concern, and focus of analysis, is rather on the Government of Kenya’s fiscal position and more specifically the fiscal deficit. We maintain the position that fiscal pressures remain the biggest
challenge to Kenya’s economy in the medium term,” it says in its pre-budget analysis.

In the 2018/19 period, total revenue was Ksh 1831.5 billion of which approximately 88% of ordinary revenue was generated through taxation. Total expenditure during this period was Ksh 2514.4 billion with approximately 79% being directed to recurrent expenditure and the remaining 21% to development expenditure.

“The total fiscal deficit for the 2018/19 period was therefore Ksh 682.9 billion, representing 7.7% of GDP (Ksh 8,904 billion),” it says.

In the 2019/20 period, total revenue is expected to rise by about 13% to Ksh 2,080.9 Billion. Total expenditure is expected to also rise by about 8% to Ksh 2,710.8 billion with recurrent expenditure
expected to account for about 75% and development expenditure around 25%. The total fiscal deficit is expected to be Ksh 629.9 billion, representing 6.7% of GDP (forecasted at Ksh 9,350
billion considering a 5% growth rate).

According to Kenya Business Guide, to finance the expected fiscal deficit in 2019/20, the government will have to undertake domestic borrowing projected at Ksh 277.5 billion, foreign financing at Ksh 306.5 billion and other domestic financing of Ksh 5.7 billion.

“While there certainly has been improvements in the government’s fiscal status and an expectation of further improvements due to fiscal consolidation efforts, the goal of gradually reducing the deficit to 3.1% of GDP in the medium term will require much more robust reform particularly around the balance between recurrent and development expenditure,” it says.

According to Kenya Business Guide, rationalising recurrent expenditure, alongside enhanced revenue mobilization, is at the heart of the government’s fiscal consolidation plan and must carried out at a more robust rate particularly through the privatisation agenda of State-Owned Enterprises (SOEs) which currently absorb Ksh 346 billion in annual capital grants alone.

“Allocating more money towards development expenditure (provided current leakages are addressed) will greatly boost business and economic outcomes inevitably improving the GoK’s
fiscal stance and by virtue the state of the economy,” it says.

It adds the political-economic dynamics that constrain the rationalising of recurrent expenditure and general ‘downsizing’ of government (such as privatisation efforts) suggest that the second pillar of the fiscal consolidation strategy will be more likely to be pursued in a vigorous manner.

“In the enhancement of revenue mobilisation, however, the Government must carefully balance increases in tax rates and the tax base. Increases in the former, which is currently perceived by
many in industrial production and manufacturing as a witch-hunt, will be detrimental to the business and investment environment ultimately reducing overall output of productive sectors and indeed the base for collection,” adds Kenya Business Guide.

Enhancing revenue mobilization is further driven by the increasing levels of public debt and the costs of servicing it. In the 2018/19 period, public debt transactions were approximately Ksh 856.6 billion representing 34% of total expenditure.

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“As described above, fiscal pressures within Government remain the biggest challenge for the economy moving forward in the medium-term. The fiscal consolidation plan has indeed shown some positive outcomes, however, to meet the fiscal deficit/GDP target of 3.1% more political capital must be spent in the rationalisation of recurrent expenditure to ensure it is truly robust
and far-reaching,” says Kenya Business Guide.

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