Realignment of priorities key to attaining medium term budget deficit target: expert

June 13, 2019 (2 weeks ago) 5:41 am
The 2019/2020 budget will be tabled in the National Assembly on Thursday.

, NAIROBI, Kenya, June 13 – Kenya needs to recalibrate its budget priorities if current plans to reduce budget deficit to 3 per cent of the Gross Domestic Product (GDP) in the medium term are to materialize, according to a tax expert.

The 2019/20 financial year budget due to be tabled in the National Assembly by NTreasury Cabinet Secretary Henry Rotich later on Thursday is set to lower budget deficit to 5.6 per cent of GDP, a 0.7 per cent decline compared to the 2018/19 financial year’s budget shortfall.

The progressive reduction of budget deficit would however, according to Samuel Mwaura, a Tax and Finance Consultant with Grant Thornton Kenya, require the formulation of a clear policy by the National Treasury to tame reliance on debt.

“They’re not coming up with a clear methodology on how they are going to attain the 3 per cent. The way things are going we can only see more borrowing as we go forward,” Mwaura told Capital FM on Wednesday, even as Kenyans were warned to prepare for tough times ahead.

He said the implementation of the Big Four Agenda would require huge investments whose funding cannot be secured through locally generated revenues alone which according to budget estimates for the 2019/20 financial year tabled in the National Assembly last Tuesday are projected to reach Sh 2.1 trillion as against a Sh 3.02 trillion budget.

Mwaura said the government should consider halting the implementation of capital-intensive development projects under President Uhuru Kenyatta’s Big Four development agenda in order to cushion the nation against debt uptake.

“The reason why our budget is thoroughly inflated is because of political ambitions and promises made which the government feels obligated to meet them. It is good to come out and say it is not possible; the economy cannot allow us to do all these projects,” he explained, noting that a Sh 2 trillion budget would be within the country’s ability to finance.

Mwaura emphasized on the need to finance budget deficit primarily through external borrowing to cushion the public from reduced access to loans with commercial banks often opting to lend the government at the expense of individual borrowers.

2019/20 budget estimates put the percentage of funds to be borrowed from the local market at 47 per cent against 53 per cent of debt set to be financed through external sources.

“External borrowing is the way to go. When the government concentrates on borrowing locally then it affects the capacity of local banks to lend to the common mwananchi because they (banks) are getting better returns from the government and assured returns for that matter,” he said.

The budget deficit for the 2019/20 financial year is estimated at Sh 607.8 billion, Sh 324.3 billion of which will be financed through external borrowing while Sh 289.2 billion will be raised through domestic borrowing.

Government borrowing has recently sparked controversy following revelations that the country’s sovereignty over some key infrastructure assets could be jeopardized in the event the country defaults on foreign loans.

Mwaura held the opinion that the National Treasury should shift its focus to the performance of the economy, pegging external borrowing solely on the ability of the economy to finance new debt.

“As an accountant we you look at the figures the most important thing is whether or not you’re able to repay and what the interest rates are,” he said.

“Some of the things we’re not being told clearly is what the securities are and whether we’re putting our major infrastructure into jeopardy by listing them as security for loans,” he added, while emphasizing on the need to limit borrowing which has continuously led to the shrinking revenues available for development.

The current debt burden, Mwaura said, left the government with hardly sufficient funds after servicing debt and paying for recurrent expenditure.

Kenya’s debt had by September last year risen to Sh 5.2 trillion, Sh 2.5 trillion of which was owed to domestic lenders.

The National Treasury is targeting to raise Sh 607.8 billion to plug a budget deficit in the Sh 3.02 trillion 2019/20 financial year budget.

The Sh 3.02 trillion budget marks a 4.2 per cent reduction compared to the 2018/19 Sh 3.07 trillion budget.

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.

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