BUDGET 2020/21

Budget experts call for realistic revenue targets

In Summary
  • The parliament has in the past years set unrealistic budget targets, forcing Treasury to turn to borrow, piling pressure on already huge public debt.
  • The state targeted to have collected Sh1.54 trillion during the period, resulting in a deviation of Sh211.9 billion.  
Parliament buildings. Photo/Monicah Mwangi
Parliament buildings. Photo/Monicah Mwangi

The International Budget Partnership Kenya and the Institute of Public Finance Kenya want the National Parliament to be realistic on revenue targets in the 2020/21 budget.

In their memorandum ahead of the June 11 budget statement,  the two bodies representing views of 114 individuals drawn from 74 organizations in 24 counties said Parliament should carefully examine revenue targets to ease pressure on taxpayers.

They said Parliament has in past years set unrealistic targets, forcing te Government into borrowing subsequently piling pressure on an already huge public debt.

 
 
 

The two bodies note that the coronavirus pandemic has greatly affected global and national economic activities,  and it is unlikely that the Nationa Treasury will meet its 2019/20 revenue target and most likely going into 2020/21.

The Parliamentary Budget Office estimates that the government will lose Sh122 billion just from the tax measures implemented by the government starting April.

Early this month, Treasury said the government’s revenues stood at Sh1.33 trillion as of March 2020, short of its 2019/2020 financial year nine-month target which was pegged at Sh1.54 trillion.  This is a Sh211.9 billion deficit.       

"This shortfall from target was attributed to deviation from targets of the ordinary revenues by Sh132.3 billion and Ministerial A-in-A by Sh79.6 billion," National Treasury Cabinet secretary Ukur Yatani told the senate ad hoc committee on the COVID -19 pandemic.

IBP country manager Abraham Rugo Muriu and IPF CEO James Muraguri said the government should enter into negotiations with debtors on immediate debt relief to free funds to handle the COVID-19 crisis.

This, they said, should be accompanied by adjustments to the national 2020/21 budget to curb non-priority expenditure, including suspension of non-essential large infrastructure projects.

 

Their proposal comes just days after Treasury rejected a debt relief offer by G20, saying the terms were too restrictive.

"The debt repayment bill for the upcoming fiscal year will be Sh904 billion, 18 per cent higher than the debt service bill for the current financial year. In this context, Kenya has very little fiscal space, and therefore budget rationalization and austerity is key going forward,’’ they said.

The two groups decried the rising public debt, saying it has increased to unsustainable levels in the past 5 years from 50.2 per cent of GDP in 2015 to an estimated 61.7 per cent of GDP in 2019.

They attributed the growth to high deficits mainly due to large capital-intensive infrastructure projects.

According to the projected budget estimates for the year starting July 1, the deficit is set at 7.3 percent of GDP, which the two say will worsen due to a reduction in fiscal revenues and an increase in expenditures to fight the spread of COVID-19.

The country is planning to finance the budget gap by external and internal debt estimated at Sh835.9 billion.

They also want the government to prioritise economic stimulus to address immediate health needs, income needs, and recovery from the pandemic especially to cushion small businesses in the informal sector worst hit by the pandemic.

The Parliament will this week receive public views on the budget estimates ahead of June 11 reading, which will be done virtually due to prevailing coronavirus circumstances.