Kenya seeks to cap budget deficit at 6.9pc in coming financial year

Treasury Cabinet Secretary Henry Rotich. The Government has pledged to take concrete steps to collect more revenue through a wide range of corrective measures to bridge the funding gap (Photo Courtesy)

The Government is targeting a budget deficit of 6.9 per cent in the 2016/17 fiscal year.

The budgetary shortfall will be brought down from a target of 8.1 per cent of the Gross Domestic Product (GDP) for this year, Treasury said in a draft budget policy statement.

The Government has increased its spending in recent years to build a modern railway, new roads and electricity plants, driving up the budget deficit and unnerving investors.

The deficit for this fiscal year is expected to decline to Sh522.3 billion ($5.11 billion), 8.1 per cent of GDP, from Sh569.2 billion, 8.7 per cent of GDP, where it was set in the June budget, the Treasury said in the draft posted on its website.

Expenditure cuts

The narrower deficit will be arrived at through a reduction in expenditure and borrowing, the ministry said in the draft, which was published for the public to offer comments before it is finalised by the Government.

“Borrowing from the domestic market has been revised down to Sh168.2 billion from Sh221.5 billion in the budget while external commercial borrowing has been raised to substitute for the lower domestic borrowing,” the Treasury said, referring to this fiscal year.

The deficit will fall to 6.9 per cent of GDP in the next financial year before declining to 4.3 per cent in the medium term.

Kenya is building a modern railway from the main port of Mombasa to the capital Nairobi and officials blame the investment for the higher budget deficit.

“Excluding expenditures related to the SGR (Standard Gauge Railway), the deficit declines from 6.3 per cent of GDP in 2015/16 to 4.1 per cent of GDP over the medium term,” the Treasury said in the statement.

Apart from cost savings, the Government is also seeking to raise about Sh64 billion through new taxes that came to effect recently, but should have been in place from July 1, 2015 which is when the country’s financial year begins.

The new taxation schedule affected products such as cigarettes, beer, fruit juices, soda, bottled drinking water, motorcycles and imported second-hand cars, whose prices are all set to rise.

“We have taken concrete steps to collect additional revenue through a wide range of revenue-yielding corrective measures ... that would yield about Sh63.64 billion, or one per cent of GDP,” Treasury CS Henry Rotich said in his letter to the IMF.

From the new taxation measures, prices of low-end cigarettes could double, while those of second-hand car imports rose by more than Sh150,000.

Prices of motorcycles — whose use in the public transport sector have swelled in the last three years to generate an estimated Sh400 million a day — will rise after the imposition of a flat Sh10,000 excise duty.

Most motorcycles used in the boda boda business cost between Sh85,000 and Sh100,000 prior to the tax changes.

A fresh purge on ghost workers is also on the cards, specifically in county governments, with employees to be audited through biometric registration.