COVID: Kenya now stares at Kshs 1 trillion budget deficit

Written By: Ronald Owili

National Treasury CS Ukur Yatani projects that the economy will grow 2.6 percent in 2020.

Kenya is seeking to borrow at least Kshs 1 trillion in the current financial year 2020/2021, to plug the gap left by revenue shortfall and ongoing stimulus measures aimed at cushion Kenyans from adverse impact of COVID-19.

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The Budget Review and Outlook Paper published by the National Treasury shows that the government will seek loans amounting to Kshs 600 billion from the domestic market while another Kshs 401.8 billion will be sourced externally.

The gap is now Kshs 161.2 billion higher than Kshs 840.2 billion the treasury had projected in the budget estimates. The deficit will similarly rise to 8.9 percent of GDP, compared to 7.5 percent as indicated in the estimates by Treasury in June.

This comes as CS Yatani revised upwards the current financial year spending to Kshs 2.92 trillion from Kshs 2.77 trillion.

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“In particular, the revenue shortfalls in the fourth quarter of the FY2019/20 was largely due to the severe disruptions on economic activities from the measures put in place to contain the spread of the COVID-19 Pandemic,” CS Yatani said.

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However, analysts are of the view that increased borrowing in the domestic market could be counterproductive especially to Micro, Small, and Medium Enterprises which are in dire need of credit as Kenya plans for post-COVID recovery.

“If banks will still be pushing money to the government, then we will have a tough business environment and the recovery which that we hope will remain flat. The main stimulus business need is access to finance to rebuild and restock,” Ken Gichinga, Chief Economist at Mentoria Economics said.

“Any government borrowing that is coming in will really set back access to finance for businesses and they are the job creators. So you might see businesses are not recovering at the pace we had hoped for and those 1.7 million jobs which had been lost will take a long time to return,” He added.

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Cutting cost

National Treasury Cabinet Secretary Ukur Yatani is now forewarning state agencies to prepare for budget cuts with the scrapping of non-core allocations in order to redirect expenses to finance Big Four Agenda, initiatives under the Economic Stimulus Programme as well as the Post Covid-19 Economic Recovery Strategy.

“All the Sector Working Groups are required to carefully scrutinize all proposed Ministries, Departments and Agencies (MDAs) budgets and ensure strict adherence to the hard sector ceilings and tight deadlines provided in this document,” CS Yatani stated.

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Though CS Yatani had earlier projected that Kenya would not grow past 2.5 percent this year due to the disruptions caused by the coronavirus pandemic, the latest review points to a growth of 2.6 percent on account of good performance from agriculture, fisheries, forestry, manufacturing, and finance.

Ordinary revenues are now projected to decline by Kshs 28 billion to Kshs 1.60 trillion in the current financial year.

“The revenue projections for FY 2020/21 have been revised taking into account the outcome of the FY 2019/20 where revenues were below target by Ksh 131.2 billion, on account of the impact of the containment measures against Covid-19 pandemic on economic activities and the tax relief measures implemented to cushion Kenyans against the adverse impact of the pandemic and to increase liquidity in the economy,” Treasury said.

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