• Reduced economic activity, subdued current account balance and slowdown in revenue generation pose threats to growth.
• PBO also concluded that Sh4.3 billion for the Hunger Safety Net programme is not adequate for those experiencing financial distress.
The 2020-21 budget is a crisis budget and may not steer the economy through the stormy waters of the Covid-19 pandemic, experts have warned.
The Parliamentary Budget Office says the pandemic has exposed the soft underbelly of the country’s economic growth story.
PBO says Kenyans are not out of the woods yet as the government would face cash challenges given the uncertain economic outlook and revenue performance.
The experts warn that should the situation get worse, the economy would weaken further and thus scuttle government response.
Things are likely to get tougher in the face of the looming global recession, said to be greater than the global financial crisis.
“It is estimated that between 25 million to 30 million jobs in Africa could be lost as a result of the Covid-19 pandemic,” PBO says in its latest Budget Watch report.
The KNBS latest survey shows that 1.7 million Kenyans lost jobs between March and August.
“Domestically, the Covid-19 containment measures have disrupted demand and supply chains leading to a significant weakening of economic activity,” the experts said.
Despite the prevailing situation, Kenya’s debt problem continues to rear its ugly head amid estimates that 49 per cent of ordinary revenue would be spent on debt servicing.
“This implies that at best, only approximately 51 per cent of nationally raised revenues will be available for fiscal year 2020-21 budget implementation.”
PBO further warns that with extra expenditures such as the Sh53.7 billion stimulus kitty by President Uhuru Kenyatta, there will be little borrowing space beyond three years.
“This year will present difficult economic conditions for fiscal consolidation measures required to maintain debt at sustainable levels,” the experts said.
PBO has also red-flagged the Sh53.7 billion stimulus package saying it may not fully alleviate the economic burden, particularly in vulnerable households.
The fear is that the package is likely to require significant financing beyond what has already been provided for in the budget.
Experts also want the prevailing depreciation of the Kenya shilling exchange rate monitored saying it “presents a new but potent risk to external debt service”.
The Budget Office further raised concerns that some elements of the stimulus are marred by accountability challenges.
“Inherent accountability issues may hinder the achievement of targeted results of this stimulus,” PBO says.
The office is headed by Phyllis Makau, Martin Masinde (head of Macroeconomic Analysis and Statistics Department); and Robert Nyaga (head of Budget Analysis and Expenditure Review Department).
The experts hold that “Covid-19 has simply worsened an already existing dire situation of the country’s shuteye economy".
PBO, in the report, says that even before Covid-19, unemployment was high in the country especially for the youth.
The team further cites that many poor people were already skipping meals and serving short-term menial jobs.
PBO says the health sector was ill-equipped, food shortages persisted, and SMEs were struggling to survive and access credit.
The experts say programmes fashioned like Kazi Mtaani are not a solution to the country’s unemployment crisis – which reasonable economic growth has failed to solve.
“These programmes offer small stipends to the youth in exchange for short term menial jobs that do not translate into meaningful, employable skills.”
PBO also concluded that Sh4.3 billion for the Hunger Safety Net programme is not adequate for those experiencing financial distress.
The experts further observed that gaps still exist in healthcare system adding that concerns over misuse of Covid-19 funds is hampering the fight against the virus.
“It has generated mistrust and apathy among the citizens with some downplaying the gravity of the pandemic or dismissing it altogether.”
PBO wants MPs to continually demand answers on the use of the funds, especially those outside the budget.
“A forensic audit of funds spent towards the pandemic since March to August will re-assure Kenyans and donors,” the report reads.
PBO said due to the ongoing situation, it is difficult to accurately predict economic growth performance for 2020.
“The outcome will largely depend on the length and depth of the crisis. Furthermore, the situation is still evolving for some businesses,” the experts said, citing the hospitality sector woes.
A decline in production is projected, hence expected to further exacerbate the impact of job losses on livelihoods.
PBO says the country needs to expand the local capacity as was the case when apparel manufacturers helped meet demand for personal protective equipment.
Adding to the gloomy situation is that declining income tax collection is expected stage a decline in tax revenues for fiscal year 2020-21.
“The loss of income will disproportionately affect workers in the travel, hotel and tourism sectors which has ground to a halt due to the pandemic,” PBO said.
The experts further warned that virtualisation may change conferencing and business travel in the future “thus dimming prospects for workers in the hospitality sector”.
PBO forecasts that income tax revenue will decline from about 7.2 per cent GDP in 2019-20 to between 5.8 - 6 per cent of GDP in 2020-21.
They want MPs to keep an eye on income tax revenue saying measures put in place to curb Covid-19 spread will contribute to income losses across most sectors.
Consumers are also said to be far from getting gains in the reduced VAT rate to 14 per cent as cost of goods remains high.
Edited by R.Wamochie