President Uhuru Kenyatta’s legacy remains one of implementing the largest public debt budgets that leaves a fiscal deficit of Sh846 billion, which will be financed by a mix of both external and local borrowing.
As the Cabinet Secretary to the National Treasury Ukur Yatani reads the budget statement for the next financial year (2022/23) this afternoon he is expected to give plans for financing a Sh3.3 trillion Budget in a tough economic environment still haunted by the lingering shocks of the Covid-19 pandemic.
The Budget is the last under the Jubilee administration and is an increase from the Sh3.3 trillion approved in June for the financial year 2021/22.
It is premised on an expected ordinary revenue collection of Sh2.1 trillion, which will be supported by a recovering economy – marking a Sh342 billion increase from the projected Sh1.8 trillion to be collected by the taxman, this year.
The government is betting on higher income tax collection from Sh818 billion to Sh997 billion and Value Added Tax (VAT) from Sh477 billion to Sh585 billion.
It also expects the Kenya Revenue Authority (KRA) to increase the collection of import duty to Sh145 billion from Sh119 billion and excise duty to Sh297 billion from Sh260 billion.
Data from the Central Bank of Kenya shows Kenya’s public debt hit Sh8.2 trillion in December, with the Parliamentary Budget Office (PBO) estimating that the debt level will rise to Sh8.6 billion by June and cross the Sh10 trillion mark by the end of 2024.
Members of Parliament in February raised the debt ceiling to Sh12 trillion, setting the stage for accelerated borrowing by the state for increasing spending plans.
In its report on the 2022 Budget Policy Statement, the Budget and Appropriations Committee had recommended that the Budget be slashed by Sh400 billion, which would have had a huge impact on the development budget, particularly on the Big Four agenda.
A majority of the borrowing that happened during this period, that is 85 percent came from domestic lenders with the balance from the external market.
The government has shifted its borrowing strategy towards local banks, individuals, pension funds, and other investors and away from external lenders over the past decade, with a dire snowball effect on the local financial markets.
“The ratio of net foreign financing to net domestic financing shifted from 57:43 (whereby net financing was depended on external financing) under the 2010 MTDS (medium-term debt strategy), to 32:68 (whereby domestic financing will be the main source of fiscal deficit financing) under the 2022 MTDS,” it said.
It is, however, notable that at a time when the government is facing challenges in revenue performance, instead of cutting down the expenditure it has increased the budget.
Majority of this budgetary increase is to cater for ballooning debt service repayment. This implies that Kenyans must be ready to lose part of their current income to the government through additional taxes.
The large fiscal deficit is set to be a heavy burden on Kenyatta’s successor after the August General Election, with the growing spending appetite scarcely being satiated by the revenue being collected into the exchequer.
The government has already planned to borrow more funds from the domestic market which is going to make it very difficult for individuals and small businesses to access credit locally.
