JAMES MULIRO
Kenya’s financial deficit widened to Sh370 billion from Sh169 billion in the year to March 31, 2015 following increased funds allocation to the country’s budget.
This represents a weakening from 3.4% to 6.5% of the gross domestic product (GPD), on the back of public funding shortfalls that has seen the Kenya Revenue Authority appear set to miss the tax collection target of Sh1.1 trillion in the current financial year.
The aggregate revenue collection, including Appropriations in Aid (AIA), for the period July 2014 to March 2015 amounted to Sh761.4 billion (representing 13.3% of the GDP) against a target of Sh829.3 billion (representing 14.5% of GDP).
This represents an underperformance of Sh67.9 billion mainly due to shortfalls in AIA collection, income tax, Value Added Tax (VAT), excise duty and import duty.
“The shortfall in revenue collection is a key concern to us, as it points to a likely higher borrowings in the coming year (likely resulting in higher domestic interest rates) or higher taxes – both of which are not conducive for economic growth (unless the tax incidence is targeted at a different set of economic actors,” analysts at the Standard Investment Bank (SIB) said in an update on the development last month.
Already, the total cumulative expenditure and lending as well as transfers to county governments for the period ending March 2015 amounted to Sh1.13 trillion. This is however, Sh53.4 billion below the target as a result of low absorption levels in operations and maintenance for both the National and County Governments. Recurrent expenditure for the National Government amounted to Sh603.7 billion (excluding Sh25 billion for Parliament and Judiciary), against a target of Sh614.4 billion. Underperformance was recorded in wages and salaries and pensions, which accounted for Sh18.9 billion and Sh215 million, respectively.
Total ministerial and other public agencies expenditure stood at Sh758.1 billion against a target of Sh888.2 billion. Recurrent expenditure was at Sh474.5 billion against a target of Sh515.7 billion, while development expenditure was at Sh283.6 billion against a target of Sh372.4 billion.
“The discrepancy between actual and target expenditures partly reflect the non-capture of the district expenditures and hence under reporting by ministries. These ministerial expenditures are therefore, provisional,” the National Treasury said last month in the Quarterly Economic and Budgetary Review for the period ending March 2015.
In a Cabinet meeting held on May 21, 2015 and chaired by President Uhuru Kenyatta, it was noted that aside from the funding pressures, sustained global economic stagnation is likely to have a negative impact on the performance of revenues. This is despite Kenya’s economic growth remaining resilient to economic shocks.
Revenue collection had fallen below target and is expected to be lower by Sh16.6 billion mainly due to administration of large income tax payers and customs as well as reduced oil imports following increased production of geothermal energy. The government’s efforts to borrow from the domestic market also fell below target due to low appetite for government securities in the local market on expectations of a decline of interest rates.
Net domestic borrowing declined to Sh47 billion (equivalent to 0.8% of GDP) in the period ending March 31, 2015, compared to net borrowing of Sh127.4 billion (equivalent to 2.5% of GDP) in a similar period ending March 31, 2014. This has however, seen total domestic debt rise to Sh1.4 trillion by the end March 2015, an increase from Sh1.3 trillion as at end of June last year. This is in addition to the external debt stock, which stood at Sh1.3 trillion as at the end of March 2015. Between July 2014 and end of March 2015, external borrowing stood at Sh179.7 billion (partly driven by the Ksh170 billion Eurobond issued last year), compared to a borrowing of Sh29.7 billion in the same period of 2014.
The budget finance pressures come on the back of declining revenues from the export market most notably in the tourism and tea sectors. This has seen the country’s balance of payments (what the country pays for imports compared to what it earns from exports) worsen by 38.5% to a massive Sh605 billion, a reflection of faster growth in imports as opposed to exports over the last few years.
Due to the widening fiscal deficit (which measures total national revenues against the government’s budgetary obligations), the government continues to face expenditure pressures even as the 2015/2016 financial year, which will unveil a Sh2.1 trillion budget, beckons.
The Cabinet meeting pointed out that the government had received requests for additional funding to cater for emerging priorities related to security operations, forthcoming international conferences and summits, slum upgrading and youth empowerment. Funding requests had also been made for the beatification process of Sister Irene Stefani (a Catholic Nun) last month to sainthood.
To address these requests, the Cabinet last month approved an additional spending amounting to Sh48.3 billion under supplementary to close the financial gap of Sh74.3million.
