DISTRESS

Budget deficit, rising debt bad for Kenya – experts

The deficit is projected at a high of 7.5 per cent of GDP in the wake of Covid-19

In Summary

•Government has been forced to borrow heavily to bridge the budget deficit with public debt hitting a new high of Sh7.12 trillion.

•Despite the borrowing, budget implementation remains a challenge at both levels of government.

The Treasury Building/FILE
TREASURY BUILDING: The Treasury Building/FILE

Kenya must address budget gaps, resource utilisation and the rising debt, financial experts have cautioned.

The Institute of Public Finance (IPFK) and the International Budget Partnership Kenya (IBPK) say the country's budget continues to experience deficits forcing the government to continue borrowing heavily

Kenya's  public debt currently stands at a new high of Sh7 trillion.

This is on the back of low revenues with the Kenya Revenue Authority continuously miss its annual targets. This year is projected to be worse on the effects of Covid-19 on the economy.

 

In a memorandum to the National Treasury, the think tanks have noted that budget implementation remains a challenge at both the county and national government levels, with monies either failing to be spent as initially intended or siphoned by the corrupt.

An analysis of the County Budget Implementation Review Report for financial year 2019/20 from the Office of the Controller of Budget shows that public budgets' credibility is relatively low.

For instance, during the reporting period, county governments incurred expenditures of Sh104.51 billion representing an absorption rate of 55.6 per cent of the county governments' cumulative annual development expenditure budget of Sh187.98 billion.

This performance declined from an absorption rate of 57.8 per cent, reported in 2018/19, when development expenditure was Sh107.44 billion.

In the Budget Policy Statement(BPS)2019, the national government pegged the low absorption at counties mainly on gaps in procurement processes.

However, the BPS 2020 did not provide a similar section on national government performance and why the poor budget implementation.

The country continues to channel more funds towards recurrent expenditure with the financial year to October having already consumed Sh295.8 billion, Treasury data shows.

 
 

Government total development expenditure was at Sh91.8 billion.

As at October 30, total revenues for the current financial year was Sh783.8 billion, National Treasury said in a gazette notice last Friday.

A total of Sh664.3 billion has been channeled to the national government with counties taking up Sh78.4 billion, the bulk going towards recurrent expenditure.

“Going into financial year 2021/22, the BPS should include performance details on the national budget and mitigation measures applied so far and their impact. This is critical information for the National Assembly to carry out its oversight role and public accountability,” the institutions have told Treasury.

They  note that annual budget deficit and the attendant public borrowing remains the Achilles heel (a weakness in spite of overall strength, which can lead to downfall), in Kenya's fiscal framework.

“There is a need to reduce the budget deficit in 2021/2022 significantly,” the memorandum reads in part.

National Treasury CS Ukur Yatani planned to reduce  this year's deficit by 1.4 percentage points to 6.3 per cent of GDP, and contain the huge debt going forward, but was forced to set it at a high of 7.5 per cent in the wake of Covid-19.

According to Yatani, the pandemic has disrupted the government's plan to reduce its reliance on debt.

"Our fiscal consolidation plan has been adversely affected by the events over the last six months," Yatani told Parliament when he presented the budget for the financial year ending June 2021.

The government has in the past been forced to borrow heavily to implement infrastructure projects, and is currently accumulating debt to mitigate effects of Covid-19.

The swelling public debt has raised concerns from local financial experts the World Bank and IMF, with pointers that Kenya could default on its debt.

It is reported at Sh7.12 trillion in the latest Central Bank of Kenya data, of which Sh3.66 trillion is borrowed from external markets while Sh3.46 is domestic.

The speed of accumulating debt is worrying. The government should slow down on mega projects,” IPF(Kenya) CEO and founder James Muraguri told the Star in a telephone interview.

CS Yatani has however maintained that the country's debt was sustainable even as treasury is expected to borrow about Sh1 trillion in the financial year ending June 2021.

The country’s debt is estimated to hit the Sh9 trillion ceiling, approved by Parliament last year, within the next two years.

"Kenya's debt is sustainable, we are not feeling any distress,” Yatani said.

Though he notes revenues have been affected by Covid-19, which has hit different sectors of the economy, the CS said the country has legroom to borrow, adding that Kenya has never defaulted on any loan in history.