Kenya’s Budget is Beyond Reach, World Bank Warns

Kenya has been advised to initiate realistic budget projections; the World Bank has told the National Treasury. In the latest publication of the country’s Economic update, the world bank called for credible adjustment measures by government to place fiscal accounts back on the fortification path.

According to the latest figures from Treasury, Kenya’s fiscal deficit has shot up significantly to 7.7% against a projected target of 6.8% for 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 5.03 trillion.

Recently, the national Assembly approved Treasury’s request to increase the country’s debt ceiling to Kush 9 trillion in what is expected to give room for more borrowing. The sudden shift of fiscal stance may signal shifting goalposts; World Bank Kenya Chief Economist Peter Chacha reckons such deliberation 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 (PDMU) to evaluate our debt portfolio and make necessary interventions to certain 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 the2019/20 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 is expected to face the immediate squeeze of debt servicing obligations as the ration of interest and principal payments weigh hard on current count receipts. Meanwhile 43% (Ksh 1.24 trillion) of all domestic debt is expected to mature in the next one year 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.

Kenya has seen a steep decline in its composition external debt from multilateral institutions as the composition of commercial financing edges up.