Sh411 billion from projected size as reality of economic slow-down bites

The Treasury has revised the projected size of the economy downwards by Sh400 billion, as the reality of a slowing business environment hits home.

In what could yet be another admission of the country’s turbulent economic landscape, the Exchequer has also projected a wider fiscal deficit – the difference between what it earns from taxes and what it spends – meaning it will have to borrow even more in the financial year to June 2020.

Already, several reputable institutions have downgraded the country’s economic growth this year, as major sectors, including agriculture, underperform.

The widening deficit is also fuelled by an expected reduction in donor grants this year, according to Treasury’s budget documents.

Crippling policies

Further, many companies in the private sector have resorted to firing workers to survive the stormy economic conditions. They cite crippling government policies and punitive tax measures as major concerns.

The situation has forced the Kenya Revenue Authority to come down hard on businesses, though this has had the unintended consequence of shutting down several firms unable to comply with the taxman’s harsh conditions.

“We are operating under tight resource constraints amid significant expenditure demands, including financing of the government’s ‘Big Four’ Plan. This calls for proper prioritisation to ensure that our expenditures go to the most impactful programmes with highest welfare benefits to Kenyans,” said the Treasury in the 2019 Budget Review and Outlook Paper (BROP).

In one of its latest reports, the Treasury expects the total value of the national output of goods and services – also known as the gross domestic product (GDP) – to hit Sh10.4 trillion by the end June 2020.

In September, however, an optimistic Treasury had estimated that the size of the economy by the end of the current financial year would be Sh10.8 trillion.

It was forced to revise this figure downwards after the slowdown witnessed in the first six months of 2019.

Poor rains

The International Monetary Fund has also downgraded the country’s GDP growth projections for the current financial year from an April forecast of 5.8 per cent to a current 5.6 per cent. This was on the back of the country being weighed down by a tough business and household environment.

The fund, however, expects the economy to grow faster in 2020 at 6 per cent, as the agriculture sector recovers from the effects of poor rains.