WB praises Uhuru financial estimates

June 8, 2011
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, NAIROBI, Kenya Jun 8 – The World Bank has praised the 2011/2012 financial estimates prepared by The Treasury, saying much of the money has been budgeted for sectors that are crucial for economic growth.

Speaking to Capital Business, World Bank Lead Economist Wolfgang Fengler said from the budget estimates, a sizeable chunk of the financing is going into economic driving sectors signalling the government\’s intent to maintain economic growth.

Mr Fengler said World Bank simulations have shown that should the economy maintain a five percent growth trajectory, the country is likely to have a budget deficit of four percent that can be financed comfortably through borrowing.

"We argue that you shouldn\’t stifle spending because you have this big infrastructure projects going; they are very important for growth of the economy," Mr Fengler said.

From the budget estimates released by Finance Minister Uhuru Kenyatta Sh544.9 billion will go into recurrent expenditure while Sh398.6 billion will go towards development expenditure.

Currently, Kenya\’s total debt stands at around 50 percent of GDP, even as the government toys with external borrowing to finance its programmes.

Spending on infrastructure development will go up 23.4 percent from Sh165.8 billion to Sh221.4 billion.

Mr Fengler said that while the current budget estimates appear large, rising inflation was probably the driving factor behind the current figures, and should not come as a major surprise to Kenyans.

"From just under a trillion to a Sh1.155 trillion budget with 10 percent inflation it\’s more or less the same. Now it comes down to how that money is spent," he said.

Central Bank Governor Prof Njuguna Ndung\’u however says the Kenyan economy has created massive fiscal space that cushions it between the debt levels and the ability to pay back.

"The mistake of the 90\’s is that the government was rolling over the debt then it was becoming unsustainable. Since 2003, the Kenyan economy has been creating massive fiscal space and the debt levels are only creeping back because of the economic shocks," Prof Ndung\’u said.

Institute of Economic Affairs Chief Executive Officer Kwame Owino echoed Mr Fengler\’s sentiments adding that the budget indicates the government\’s goal of stimulating growth, balancing that with other obligations such as implementation of the Constitution.

"Sometimes you can achieve more while spending less money. All that is required is efficiency so that you work that out with things like funding free primary education and governance," Mr Owino said.

In the third quarter, KRA collected Sh141.4 billion bringing total collection for the year-to-date Sh444.5 billion which is Sh61 billion more than in the previous year. The 2010/2011 revenue target is pegged at Sh641 billion.

Mr Fengler said he was optimistic that at 25 percent of revenues to GDP, the government would be able to self-fund the budget.

"KRA has not hit its targets because the targets have been extremely high but in hindsight it has increased revenue collection. Kenya is well on its target of being at 25 percent revenues to GDP so I don\’t think there will be many surprises with tax this year," he said.

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