Tough balancing act as Sh3tr Budget to secure Uhuru legacy

President Uhuru Kenyatta at State House, Nairobi, during the 2020 virtual African Delivery Exchange Conference. The 2021-22 Budget will the last full spending plan his administration will oversee. [File]

The government will spend Sh3 trillion in the year to June 30, 2022, pushing President Uhuru Kenyatta’s eight-year total spending to Sh18.5 trillion.

But as fate would have it, the president’s fiscal policy - which largely depends on massive spending and public revenue - might end as it started: with high expenditure needs, decreasing tax revenues and increased borrowing.

Thanks to the Covid-19 pandemic, the Treasury will chalk up more debt, borrowing Sh937.6 billion to plug a budget hole caused by the virus, which has left the economy on its knees.

This means that the country’s fourth president will have incurred Sh6 trillion in loans between the 2014-15 financial year and 2021-22, which is about three times what the previous heads of state borrowed, combined.

If you add the Sh925 billion that Treasury projects will be borrowed in the 2022-23 financial year, but whose use will not be overseen by the current administration, Uhuru’s loans are likely to clock Sh7 trillion by the end of his tenure.

However, the size of the economy will have doubled over this period from Sh5.6 trillion in June 2015 to Sh13 trillion in July next year.

By the end of 2019, the income per person was estimated at Sh204,783, growing from Sh113,539 when the Jubilee Government came into power 2013.

“This enabled generation of around 827,000 new jobs per year in the period 2013-2019, up from 656,500 new jobs per year in the period 2008-2012. GDP per person has nearly doubled over this period,” noted the Treasury Draft Budget Policy Statement (BPS) for the financial year ending June 2022.

Debt market

And despite limited activity in the economy after a battering caused by Covid-19, the government still has to meet its bills. As a result, it has set a target of raising Sh1.765 trillion in taxes in the financial year that starts on July 1.

It will also plunge deeper into the debt market to prop up the fledgeling economy by spending more on projects related to Big Four Agenda and a new Post-Covid-19 Economic Recovery Strategy (ERS).

A big chunk of the Sh937.6 billion that will be borrowed will come from local investors (Sh592.2 billion), with the balance borrowed from foreigners.

It is a delicate balancing act for National Treasury Cabinet Secretary Ukur Yatani who needs to grow the economy by ramping up spending, but also needs to reduce debt vulnerabilities by taming the country’s appetite for borrowing.

Yatani’s draft Budget statement released yesterday for public participation indicates that additional expenditure requests for the current financial budget are at unprecedented levels, which necessitated a review of the Government’s spending plan.

“Thus, we have had to critically review our existing programmes and policies to ensure that they are not only consistent with our development agenda but also informed by emerging realities brought about by the emergence of the Covid-19 pandemic,” said Yatani.

With scores of businesses still reeling from the after-shocks of the viral disease, and millions of workers losing their jobs, the Kenya Revenue Authority (KRA) is still expected to collect nearly Sh1.8 trillion from a starved economy.

The Treasury revised upwards the targets for most tax categories, as it warms up to economic recovery.

The government is also setting aside billions of shillings as part of policy interventions to jumpstart economic recovery following the disruption experienced under the pandemic.

To be turbocharge the economy, which is expected to grow at 0.6 per cent this year, the government has prepared a Sh930 billion war chest as part of its recovery strategy.

This, said the Treasury, is expected to reposition the economy on a steady and sustainable growth trajectory.

In the current financial year, the government set aside Sh56.6 billion under the Covid-19 Stimulus Programme to sustain economic activities and cushion vulnerable Kenyans and businesses.

The Treasury said while the stimulus programme has registered success through programmes like Kazi Mtaani, the timely disbursement of the post-Covid-19 economic stimulus recovery plan will depend on the implementation of the necessary laws.

“The capacity of institutions such as the State Law Office and National Law Reform Commission to draft legislation in a timely manner will also be enhanced,” it explained.

“In this regard, the Parliamentary calendar will be amended to accommodate the passing of key legislation required to facilitate the implementation of the Post-Covid-19 (economic stimulus response) ERS.”

Revenue shortfalls

In its Post-Covid-19 ERS 2020-2022, the Treasury said the Sh930 billion will be invested in areas that will enable businesses and jobs to thrive, while keeping the coronavirus at bay.

Education, which was muted for most of last year, will play a huge role in Uhuru’s recovery plans, with more funds going to free day secondary schools, more primary teachers being hired, desks being purchased, upgrading ICT and internet connectivity in all 5,000 universities, and increasing the enrollment of students under the free primary education programme.

The Jomo Kenyatta International Airport (JKIA) uplift and pavement of Mombasa International Airport will also receive a huge chunk of the funds, as will tourist establishments, horticulture farmers, the elderly and persons living with disabilities.

The Treasury expects to collect more taxes and find other avenues of borrowing to help it finance this two-year stimulus package, which might determine Uhuru’s legacy.

And in other measures contained in the Draft Budget Policy Statement, the Treasury has allocated Sh401 billion to the energy, infrastructure and ICT docket for the 2021-22 financial year, marking a Sh40 billion increase from this year’s allocation.

 

Out of these funds, Sh201 billion will go to infrastructure, Sh67 billion for transport development and Sh13 billion to housing and urban development. The Energy ministry has been allocated Sh78 billion.

This is the last complete Budget the Jubilee Government will execute, and the allocations reflect the Treasury’s goal of upholding funding towards Uhuru’s legacy projects under the Big Four Agenda.

The pillars of the Big Four Agenda include the development of cheap housing, enhancing value addition to create more jobs for wananchi, universal healthcare and ensuring that every Kenyan gets sufficient, nutritious food.

The government has also pledged to construct 76 kilometres of BRT lanes, 50 stations and two park-and-ride facilities, five county government headquarters and 200 footbridges under the transport and public works department over the next financial year.

However, the Treasury has flagged revenue underperformance in the current financial year as a going concern, with many businesses still struggling to regain their footing amid the pandemic.

Revenue collection in the first six months of the 2020-21 financial year fell by 14 per cent compared to a growth of 17 per cent over a similar period the previous year.

“The cumulative total revenue - inclusive of Ministerial Appropriation in Aid (A-I-A) amounted to Sh800 billion against a target of Sh907 billion, with shortfalls recorded in both ordinary revenues (Sh75.8 billion) and Ministerial A-I-A (Sh31.8 billion),” said the BPS in part.

The introduction of tax reliefs as part of the economic stimulus following the pandemic also resulted to a 15.8 per cent decline in income, with value added and excise taxes reducing by 15.3 per cent and 0.6 per cent, respectively.

At the same time, the Treasury has set aside Sh343 billion for county governments under the equitable revenue share allocation, although the government says Sh53.5 billion expected under the new revenue-sharing formula will not be met.

“It should be noted that in September 2020, Parliament approved the third basis for the allocation of the share of national revenue among the county governments on condition that the formula’s implementation would be preceded by a Sh53.5 billion increase in the counties’ equitable revenue share,” said the Treasury.

“However, owing to the sustained underperformance in ordinary revenue, now worsened by economic and fiscal repercussions of the Covid-19 pandemic, a 16.9 per cent growth in counties’ FY 2021-22 equitable revenue share allocation is not fiscally achievable.

“Instead, the National Treasury proposes that county governments’ equitable share of revenue be adjusted moderately by Sh10 billion (equivalent to a 3.2 per cent growth) to yield a new baseline allocation of Sh326.5 billion.”

This is expected to adversely affect county operations and lead to the piling up of more pending bills, a perennial challenge raised by the private sector.

As at November 10 last year, counties had reportedly settled Sh39 billion in pending bills, representing 76 per cent of eligible pending bills, leaving an outstanding balance of Sh12 billion.