Kenya’s weak financial muscle came into sharp focus yesterday, when Treasury CS Henry Rotich petitioned Parliament to reduce the money allocated to the counties by Sh18 billion in the next financial year.
Rotich told the Senate Finance Committee that the government is unable to disburse funds due to low revenues caused by last year’s overstretched election cycle.
“It is impossible to disburse 100 per cent to the Judiciary, Executive and Parliament, yet you don’t want me to borrow. This is not possible, I mean something must give,” Rotich said.
He said the government will introduce an amendment to the Division of Revenue Act, 2017, to reduce the amount allocated to the counties.
According to Treasury’s draft Budget Policy Statement for the Medium Term Expenditure Framework 2018/19-2020/21, allocations will increase from the current Sh306 billions to Sh315 billion in 2018/19.
Rotich’s admission that the government is broke was uncharacteristic for an administration that has in the past months maintained a brave face about meeting its budgetary obligations, despite fiscal indicators to the contrary.
Last November, for instance, Rotich defended the government’s performance in keeping the economy steady, despite various knocks, projecting the fiscal deficit for 2017/18 to go down to 6.4 per cent from 8.5 per cent the previous year.
“We have kept our fiscal deficit at a manageable level in comparison to our Gross Domestic Product (GDP), and shall continue to do so,” Rotich told journalists.
Ironically, it is during the same press briefing that he revealed that Kenya had extended by six months the repayment of $750 million (Sh75 billion) syndicated loan it took in 2015 from 26 banks arranged by Citigroup, Standard Bank and Standard Chartered. He attributed the extension to low revenue collection.
The loan, which was meant to address some of the interest rates pressures by then, and attracted 5.7 per cent interest, matured by the end of October last year. The six months’ extension will lapse next month.
Since then, Kenyans have consistently witnessed symptoms of a broke government that has turned to borrowing, pushing public debt beyond Sh4.5 trillion, with two dollar-denominated bonds, the second worth Sh202 billion being the latest resort.
Incidentally, part of the proceeds of the fresh Eurobond issue will be used to offset the due syndicated loans borrowed in 2013 and 2017.
Rotich yesterday insisted that the country’s debt is sustainable, but all government institutions have been urged to put in place austerity measures.
This year, the government has already floated two local bonds worth Sh40 billion each.
In January it issued a 15-year infrastructure bond worth Sh40 billion. According to the Central Bank’s January prospectus, the amortized fixed coupon infrastructure bond will earn investors 12.5 per cent interest per annum, with the minimum investment of Sh100,000 and a maximum of Sh20 million per investor.
Last month, the government re-entered the money market, seeking Sh27 billion through two reopened 15-year bonds from which it took only Sh13.2 billion when they were floated just over a week ago.
In its advertisement for the tap sale, the Central Bank of Kenya (CBK) said it would take the bids for the reopened 2010 and 2013 bond issues on the basis of the respective yields of 12.676 per cent and 12.906 per cent to be allocated on a first-come, first-served basis.
The budget deficit to GDP is projected to widen to 7.20 per cent, compared to an earlier budget estimate of 6.80 per cent. The deficit will be financed via domestic borrowing amounting to Sh293.80 billion, up 6.57 per cent, and external borrowing to the tune of Sh323.20 billion, up 26.27 per cent.
Consequently, to be able to hit its full-year target for tax income of Sh1.44 trillion, KRA will be forced to collect almost Sh134.94 billion every month between January and June.
By the end of November 2017, the total cumulative revenues including Appropriations in Aid (A-I-A), collected amounted to Sh558.4 billion, against a target of Sh611.0 billion. The recorded shortfall of Sh52.6 billion was a result of an underperformance of the ordinary revenues by Sh29.7 billion and the ministerial A-I-A by Sh22.9 billion.