The Treasury plans to raise Sh2.115 trillion in total revenue. The targeted revenue is Sh284.4 billion more than the Sh1.831 trillion income estimates for the current year ending this month.
Treasury Secretary Henry Rotich is expected to announce a raft of tough tax compliance measures intended to catch defaulters using smart technology in his bid to raise funding for the Sh3.1 trillion ($31 billion) budget starting July 1.
This means the Kenya Revenue Authority (KRA) is expected to collect Sh225.7 billion more in the coming financial year than the revised Sh1.65 trillion target for the current year.
Business Insider Sub-Saharan Africa spoke to Kenya Business Guide, a private sector development think-tank that seeks to support the transformation of the business and investment environment in Kenya, to get a picture of what Kenya’s national budget for year 2019/20 would look like.
Here is a short summary of their analysis.
Overall the Kenya Business Guide (KBG) does not expect any significant surprises on the allocation of funds across the sector priorities; following the trend in previous budgets, allocations have focussed on priorities identified by the Vision 2030 and broken down into the respective medium-term plans.
1. Fiscal pressures remain the biggest challenge to Kenya’s economy in the medium term
In the 2018/19 period, total revenue was Ksh 1831.5 Billion of which approximately 88% of ordinary revenue was generated through taxation. Total expenditure during this period was Ksh 2514.4 Billion with approximately 79% being directed to recurrent expenditure and the remaining 21% to development expenditure.
The total fiscal deficit for the 2018/19 period was, therefore, Ksh 682.9 Billion, representing 7.7% of GDP (Ksh 8,904 Billion).
In the 2019/20 period, total revenue is expected to rise by about 13% to Ksh 2,080.9 Billion. Total expenditure is expected to also rise by about 8% to Ksh 2,710.8 Billion with recurrent expenditure expected to account for about 75% and development expenditure around 25%.
The total fiscal deficit is expected to be Ksh 629.9 Billion, representing 6.7% of GDP (forecasted at Ksh 9,350 Billion considering a 5% growth rate).
2. Borrowing will be at the heart of actualising Kenya’s national budget, 2019/20
While there certainly has been improvements in the Government’s fiscal status and an expectation of further improvements due to fiscal consolidation efforts, the goal of gradually reducing the deficit to 3.1% of GDP in the medium term will require much more robust reform particularly around the balance between recurrent and development expenditure.
3. Rationalising recurrent expenditure must be carried out at a more robust rate
Rationalizing recurrent expenditure, alongside enhanced revenue mobilization, is at the heart of the Government’s fiscal consolidation plan and must be carried out at a more robust rate particularly through the privatization agenda of State-Owned Enterprises (SOEs) which currently absorb Ksh 346 Billion in annual capital grants alone.
Allocating more money towards development expenditure (provided current leakages are addressed) will greatly boost business and economic outcomes inevitably improving the GoK’s fiscal stance and by virtue the state of the economy.
The political-economic dynamics that constrain the rationalizing of recurrent expenditure and general ‘downsizing’ of Government (such as privatization efforts) suggest that the second pillar of the fiscal consolidation strategy will be more likely to be pursued in a vigorous manner.
4. The government must carefully balance increases in tax rates and the tax base
In the enhancement of revenue mobilization, however, the Government must carefully balance increases in tax rates and the tax base. Increases in the former, which is currently perceived by many in industrial production and manufacturing as a witch-hunt, will be detrimental to the business and investment environment ultimately reducing the overall output of productive sectors and indeed the base for the collection.
Enhancing revenue mobilization is further driven by the increasing levels of public debt and the costs of servicing it. In the 2018/19 period, public debt transactions were approximately Ksh 856.6 Billion representing 34% of total expenditure.
As described above, fiscal pressures within Government remain the biggest challenge for the economy moving forward in the medium-term. The fiscal consolidation plan has indeed shown some positive outcomes, however, to meet the fiscal deficit/GDP target of 3.1% more political capital must be spent in the rationalization of recurrent expenditure to ensure it is truly robust and far-reaching.