Kenya to increase borrowing as budget gap grows

National Treasury Principal Secretary Kamau Thugge

Kenya is likely to borrow another Sh600 billion this financial year after revenue shortfalls, pushing the country deeper into the debt trap.

It had earlier been forecast that borrowing would be capped at Sh558.9 billion.

Despite a pinching tax on fuel, the gap between spending and revenues has continued to increase, prompting the Treasury to revise targets for the Kenya Revenue Authority.

The budget deficit has grown to Sh600 billion, with tax revenues expected to drop to Sh1.8 trillion, down from Sh1.9 trillion projected in the 2018/19 Budget.

Finance Principal Secretary Kamau Thugge said the dismal results from the taxman made the Government to revise its expectations.

“We had made projections based on what we expected KRA would collect but performance was bad, especially the last three months and so we had to adjust,” Dr Thugge said.

This means that Kenya’s targeted fiscal deficit will rise to six per cent, from a targeted 5.7 per cent, which was still seen as high by the International Monetary Fund (IMF) and formed its basis to push for debt management.

Pressure now shifts to KRA, whose task has been made even more difficult after Parliament threw out tax proposals, including 0.05 per cent tax on transactions above Sh500,000 and 0.5 per cent tax for a housing fund.

KRA has had a history of under-performing on Treasury tax targets and in May this year, Treasury had to reduce tax estimates to Sh1.415 trillion.

Kenya’s financing deficit over the past few years has been oscillating between 8.4 per cent in 2014 to 7.4 per cent in 2015, then 8.8 per cent in 2016 and last year, it stood at 6.9 per cent. The plan was to cut it to 5.7 per cent this year and then 4.3 per cent next year.