Standard Investment Bank Research Economist Eric Musau says the increased expenditure will see government borrowing go up significantly which will lead to increased interests rates.
“The will borrow more so as to counter the deficits, there are major infrastructure projects that are ongoing that need a lot of financing that includes the Standard Gauge Railway, ” Musau said in an interview with Capital FM Business.
The government is hoping to maintain inflation at five percent in the medium term as well as improve revenue by 20 percent in the period under review based on the ongoing tax reforms in the country.
Musau said the expected improvement in the ongoing tax reforms will take a bit of time before tangible benefits are accrued.
“Some of the reforms that will be felt include Capital Gains Tax, but it will take time for this tax to be effective in the market,” he said.
According to the released 2015/2016 expenditure estimates approved by Cabinet, Energy, Infrastructure and ICT sectors, combined, will for the first time overtake Education, having been allocated 27.3 percent of the budget compared to 21.7 percent previously.
According to the current estimates, Parliament has been allocated Sh27.1 billion while the Judiciary has been allocated Sh15.7 billion and the National Executive Sh1.19 trillion.
County governments were also allocated Sh258 billion.
The estimates are yet to be approved by Parliament.
“We will also see the government borrowing more from the sovereign bonds as we saw last year. The government must put up measures that will see the money used appropriately and not mishandled,” Musau added.
Last year, the country received Sh67 billion from international investors after reopening of the Eurobond it issued in June 2014.
Treasury Cabinet Secretary Henry Rotich said the country reopened the sovereign bond seeking to raise the cash ($750 million) from international investors.
Rotich said the issue compromised a bond for Sh22.2 billion ($250 million) with a five year maturity at an interest rate of five percent and another for Sh45.1 billion ($500 million) with another 10 year maturity at an interest rate of 5.9 percent.
The bond was oversubscribed by 300 percent with a total demand amounting to Sh270.8 billion ($3billion) compared to the needed Sh67 million ($750 million) and proceeds were received in Kenya’s accounts on December 3, 2014.
Rotich said the re-opening increased the size of the existing bond to Sh248 billion ($2.75 billion) from the Sh180 billion ($2 billion).