Kenya hopes to reduce budget deficit to 3pc of GDP

June 12, 2019 (3 weeks ago) 7:46 am
The 2019/2020 budget will be tabled in the National Assembly on Thursday.

, NAIROBI, Kenya, June 12 – Kenya has set an ambitious target to lower its fiscal deficit to 3 per cent of the Gross Domestic Product (GDP) in the medium term (2022/23) in a bid to reduce public spending and limit borrowing.

The National Assembly Budget and Appropriations Committee has estimated Kenya’s fiscal deficit for the 2019/20 financial year, whose budget is scheduled to be tabled before the House by National Treasury Cabinet Secretary Henry Rotich on Thursday, at 5.6 per cent of the country’s GDP.

The 5.6 per cent target for 2019/20 represents a 0.7 per cent decline from the current financial year’s fiscal deficit of 6.3 per cent.

National Treasury is hoping to sustain the reforms to attain the 3 per cent mark by the financial year 2022/23.

The Kimani Ichungwah-led House Budget Committee which presented its report on proposed budget estimates for the 2019/20 financial year last Tuesday said the financing gap will decline over the media term to 3 per cent of GDP in line with the East African macroeconomic convergence criteria.

The committee projected a financing deficit of Sh 607.8 billion out of which 324.3 billion will be financed through external borrowing while Sh 289.2 billion will be raised through domestic borrowing.

The 27-member House team projected a 4.2 per cent reduction in the 2019/20 budget which is estimated at Sh 3.02 trillion compared to Sh 3.07 trillion in the 2018/19 financial year.

The decline is mainly attributed to reduced allocations for Consolidated Fund Services (CFS) which will now stand at Sh 962.6 billion compared to Sh 805.8 billion in the 2018/19 fiscal year.

An estimated Sh 696.6 billion will be channeled towards public debt servicing costs accounting for 86 per cent of CFS spending.

Interest rates expenses are expected to rise to 10 per cent as a result of a 32 per cent increase in external debt.

The ambition to scale down fiscal deficit is part of the country’s effort to improve compliance the regional macroeconomic convergence criterion which requires member countries to attain a fiscal deficit of not more than 3 per cent of respective Gross Domestic Product indices and a headline inflation rate of less than 8 per cent.

The East African fiscal convergence framework also requires members of the East African Community bloc to manage public debt below 50 per cent of their Gross Domestic Products in Net Present Value Terms and maintain reserves of at least 4.5 months of imports as precondition for entry into a monetary union by 2024.

The 2019/20 budget estimates set national government expenditure ceiling at 1.8 trillion with Parliament budget capped at Sh 43.8 billion.

County governments and the Judiciary are set to receive an estimated Sh 372.6 billion and Sh 18.9 billion respectively.

Sh 5.8 billion is to be set aside for the Equalization Fund.

In nominal terms, the 2019/20 budget as share of GDP is projected to reduce to 28 per cent compared to 32.4 per cent in the current fiscal year.

The taxman is projected to raise Sh 2.1 trillion in revenue under the 2019/2o financial year after revenue projections were revised upwards by Sh 35 billion.

President Uhuru Kenyatta’s Big Four priority projects of affordable housing, food security, universal healthcare and enhanced manufacturing will cost in excess of Sh 450 billion representing 14.6 per cent of the 2019/20 budget.

According to estimates presented by the budget committee, Sh 374.1 billion will be channeled towards the implementation of the development priorities while Sh 76.1 billion will be injected to the drivers of the development agenda.

The indicative budget for agriculture and livestock for Medium Term Plan III is estimated at 55.77 billion, manufacturing at 125.4 billion, health Sh 82.8 billion, housing Sh 103.2 billion.

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