NAIROBI, Kenya, Jan 19 – Economic experts predict additional taxes will be levied in 2016 as pressure on revenue financing intensifies in the country.
PineBridge Investments says more pressure will be on aggressive tax collection as foreign borrowing has become unattractive for financing projects due to high interest rates.
The firm’s Chief Investment Officer Nicholas Malaki sees higher domestic borrowing in 2016 driven by increased budget due to spending pressure to meet significant infrastructure projects needs.
The National Treasury last year introduced excise tax on vehicles, motorcycles, cigarettes, fruit and vegetable juices and water.
The higher taxes were introduced by Treasury secretary Henry Rotich in June to cater for the current year’s budget.
“The government is unlikely to borrow from the sovereign bond as interest rates have now risen to above 10 percent due to the strengthening of the dollar; we will see the government do development borrowing through bilateral ties like what they did with the Chinese government on the Standard Gauge Railway,” Malaki explained.
Malaki predicts that the country’s GPD will grow above five percent driven by heavy spending on infrastructure, energy and the social sectors as well as agriculture as favourable weather conditions have seen agriculture recover from the shocks of the 2011 drought.
However weather patterns outlook remain uncertain in 2016 owing to the fact that sometimes El Niño rains are followed by drought and this could negatively affect the agriculture sectors. However Malaki says this does not occur all the time.
“We expect interest rates to remain range bound in the first half of 2016 as equity market remains volatile in 2016,” he said.
The Kenya shilling is also expected to be less volatile in 2016.
The National Treasury revised Kenya’s 2015 growth forecast downwards twice, initially from 7 percent to 6.5 percent then to 5.8 percent citing the impact of the tightening monetary policy.
Kenya’s third quarter 2015 Gross Domestic Product (GDP) expanded by 5.8 percent compared to 5.2 percent in the same period last year and 5.6 percent in the second quarter of 2015 according to the Kenya National Bureau of Statistics (KNBS).
This marks the highest quarterly growth in 2015 but the period’s growth lagged 2010-2014 average third quarter growth of 6.2 percent.
The growth was mainly driven by 14.1 percent in construction, 12.5 percent growth in mining and quarrying and 11 percent and 10.1 percent expansion in electricity supply and financial and insurance, respectively.