Kenya’s budget projections are unrealistic, World Bank warns

Kenya should initiate realistic budget projections; the World Bank has told the National Treasury. In the latest publication of the Kenyan Economic Update, the global lender called for credible adjustment measures by government to place fiscal accounts back on the ‘fortification path’. According to latest Treasury figures, Kenya’s fiscal deficit has shot up significantly to 7.7 percent against a projected target of 6.8 percentfor the concluded 2018/19 fiscal year. Subsequently, the slippage has resulted into an increase in public debt to Ksh.5.89 trillion as of June from Ksh.5.03 trillion. Recently, the National Assembly approved Treasury’s request to increase the country’s debt ceiling to Ksh.9 trillion in what is expected to give it room for more borrowing. The sudden shift of fiscal stance may signal shifting goal posts; World Bank Kenya Chief Economist Peter Chacha reckons such deliberations remain key in resetting the government budget processes back into reality. “Fiscal consolidation should be an outcome of a realistic revenue projection and a well anchored expenditure position to ensure our debt remains sustainable,” he said. “We would recommend capacity building in the Public Debt Management Office (PDMO) to evaluate our debt portfolio and make necessary interventions to contain debt,” Chacha added. The government has already initiated tumultuous austerity measures which parliament is divided over. This even as the Ukur Yatani-led Treasury said we will see an estimated Ksh.131 billion out of the 2019/20 financial spending directed to the Big 4 Agenda. Treasury has also indicated plans to review downwards Kenya Revenue Authority (KRA) targets for the financial year in realization of the over ambitious revenue mobilization plans. In its latest findings, income taxes represented the highest shortfall equivalent to Ksh.56.8 billion as the KRA came up against reduced corporate investments and frustrations in implementing revenue yielding measures including withholding taxes on winnings. “The Government will not deviate from the fiscal responsibility principles, but will make appropriate modifications to the financial objectives contained in the latest Budget Policy Statement to reflect the changed circumstances,” noted Treasury’s Budget Review and Outlook Paper (BROP) publication on September 30. Treasury’s supplementary budgets can thus be expected to feature as an occasional norm with the World Bank regarding any future adjustments to the budget as ‘a reflection of reality.’ The government is expected to face the immediate squeeze of debt servicing obligations as the ratio of interest and principal payments weigh hard on current count receipts. Meanwhile, 43 percent (Ksh.1.24 trillion) of all domestic debt is expected to mature in the next one year posing imposing significant fiscal pressures. To live up to the billing, the World Bank has recommended for the re-calibration of all debt towards longer and cheaper terms which would in effect require the government to sink back into the debt market. However, independent analysts remain puzzled on Kenya’s qualification for cheap funding in its post low-middle income status gain to recommend a hold on the fiscal containment champagne bottle. “The proposed amendment is aimed at maintaining access to concessional funding from multilateral and bilateral agencies. It remains unclear why there is a shift towards concessional funding,” noted researchers from the Genghis Capital Investment Bank. Kenya has seen a steep decline in its composition of external debt from multilateral institutions as the composition of commercial financing edges up. The International Monetary Fund (IMF) recently echoed concerns on the success of Kenya’s fiscal consolidation plan having sighted years of missed revenue targets.

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