•Treasury plans to borrow borrow at least Sh774.4 billion to bridge the budget as revenues are estimated at 16.2 per cent of GDP, about Sh1.75 trillion.
•CS Ukur Yatani however plans to reduce borrowing by about 7.5 per cent from the Sh840.6 billion borrowing plan he had in the current financial years' budget.
Image: FREDERICK OMONDI
Austerity measures and cuts on capital expenditure are likely to feature widely in the 2021/22 budget, as part of the government's economic recovery plan..
National Treasury Cabinet secretary Ukur Yatani who on Wednesday launched a three-day public sector hearings on the budget proposals for the the next financial year and the Medium-Term, signalled reduced spending and a cut on borrowing, targeted at bringing down the country's fiscal deficit to 3.5 per cent of GDP.
Treasury has projected overall expenditure and net lending at 23.7 per cent of the GD.
With the Gross Domestic Product(GDP) at Sh10.908 trillion (nominal 2019 estimate), it puts next year's budget at an estimated Sh2.58 trillion, an 11.3 per cent cut from the current financial year's Sh2.91 trillion budget he presented in Parliament in June.
This, as he maintains an ambitious revenue target of 16.2 per cent of the GDP, about Sh1.75 trillion( ordinary revenue and Appropriation-in-Aid), higher than this year's projected Sh1.62 trillion.
“Revenue performance will be underpinned by the on-going reforms in tax and revenue administration and implementation of Post Covid-19 Economic Recovery Strategy,” Yatani said.
His budget plans puts the deficit at about Sh830 billion which the government will depend on borrowing to bridge, as Kenya Revenue Authority collections remain below the spending plans.
“The deficit will be financed by a net external financing of 3.3 per cent of GDP and a net domestic financing of 3.8 per cent of GDP,” CS Yatani said.
This means treasury is targeting to borrow at least Sh774.4 billion with Yatani planning a departure from expensive commercial loans that have sent the country’s public debt to the roof, currently at Sh7.12 trillion.
In his estimates, the country will borrow Sh414.50 billion from the domestic market and Sh359. 9 billion externally, to fill in the budget deficit.
This means Treasury plans to reduce borrowing by about 7.5 per cent from the Sh840.6 billion (Sh494 billion domestic and Sh347 billion external debt), borrowing contained in the current financial year ending June 30, 2021, which has however been pushed up by the Covid-19 pandemic.
“The Government remains committed to pursuing a fiscal consolidation policy. The policy aims at gradually reducing the fiscal deficit from 8.0 per cent of GDP in FY 2019/20 to 3.5 per cent over the medium term,” Yatani said on Wednesday.
He said fiscal consolidation will be achieved through enhancement in revenue collection, expenditure rationalisation in non-priority areas and sustainable public borrowing.
“The outcome will be a reduction in the fiscal deficit that will ensure debt sustainability. We will also continue with the implementation of the “Big Four” Agenda and initiatives under the Post Covid-19 Economic Recovery Strategy (PC-ERS),” he said.
This, the CS added that it will reposition the economy on a steady and sustainable growth path, slow after minimal perfomance this year, where Treasury has cut growth to 0.6 per cent, as Covid-19 continues to take a toll on the economy.
The pandemic has hit the country's revenue basket denting government spending plans, a move that has seen Treasury move to borrow more than it had planned to bridge the deficit.
The total cumulative revenues as at end of October 2020, including Appropriations-in-Aid (A-i-A), was Sh505.3 billion (or 4.5% of GDP) against a target of Sh 570.7 billion reflecting a shortfall of Sh65.4 billion.
With regard to total expenditure and net lending, preliminary figures as at end of October, 2020 indicate that the actual expenditure amounted to Sh733.4 billion against a target of Sh761.2 billion and was, therefore below target by Sh27.8 billion–Treasury data.
In terms of the fiscal deficit, as at end October 31, 2020, the overall fiscal balance amounted to a deficit of Sh223.7 billion (2.0% of GDP) against a targeted deficit of Sh172.8 billion (1.5% of GDP). As a comparison, the overall deficit in the corresponding period in 2019 was Sh133.8 billion.
Yatani has since asked the public and sector working groups to consider the tight resource envelope as they give input in the planing of the next budget, with Covid-19 being a constraint to growth.
“Sector Working Groups were required to scrutinise the proposed budgets and ensure strict adherence to a hard budget constraint. It is my sincere hope that this was taken into account when sectors were coming up with Sector Budget proposals,” he said.
Meanwhile, the CS is expected to review the Medium Term Fiscal Framework as contained in the 2020 Budget Review Outlook Paper (BROP) to reflect realistic projections for the Medium-Term.
This is in view of the emerging nature of the Covid-19 pandemic and its impact on the economy.
“The revised Fiscal Framework will be contained in the Budget Policy Statement which we expect to submit to Parliament by mid February, 2021,” Yatani said.