Loans spree to continue next year by over Sh542bn: Report

Treasury Secretary Henry Rotich (left) and his Principal Secretary Kamau Thugge leave the main chamber of the National Assembly after appearing before the National Assembly Budget and Appropriations Committee to explain the State cash crunch on October 15, 2015 . SALATON NJAU (NAIROBI)  

In Summary

• The 2015 Budget Review and Outlook Paper, reviewing recent economic developments and outlining the government’s fiscal plans for the next financial year, shows that Treasury expects to borrow at least Sh542 billion in the financial year 2016/17 to plug gaps in the national budget.
• National Treasury Cabinet Secretary Henry Rotich, however, says the overall budget deficit is projected to decline as major infrastructural projects such as the ongoing Standard Gauge Railway are completed.
• Also, the government’s heavy borrowing last year had adverse effects, with expenditure on foreign and domestic interest payments rising above the target by Sh4.4 billion and Sh3.4 billion, respectively, according to the documents.
• Foreign interest payments amounted to Sh33.3 billion, compared with Sh15.6 billion in the same period of 2013/14.

By BRIAN NGUGI
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The government’s borrowing spree that has in the past few months raised eyebrows and attracted greater scrutiny of public expenditure, will continue in 2016, according to the latest financial plans seen by the Sunday Nation.

The 2015 Budget Review and Outlook Paper, reviewing recent economic developments and outlining the government’s fiscal plans for the next financial year, shows that Treasury expects to borrow at least Sh542 billion in the financial year 2016/17 to plug gaps in the national budget.

“The fiscal deficit in FY 2016/17 will be financed by net external financing of Sh239 billion (3.3 per cent of GDP) and net domestic borrowing of Sh239.8 billion (3.3 per cent of GDP),” the documents tabled in National Assembly last week show.

National Treasury Cabinet Secretary Henry Rotich, however, says the overall budget deficit is projected to decline as major infrastructural projects such as the ongoing Standard Gauge Railway are completed.

The documents show that the government has retained its priorities for the past two years, including investing in agriculture and food security, infrastructure, health care, education and entrenching devolution.

BUDGET TARGETS

The documents project that the 2016/17 budget targets on revenue collection, including appropriations, will amount to Sh1.6 trillion, up from the Sh1.3 trillion projected for the current financial year.

The government confirms in the documents the challenges it has witnessed in the current financial year regarding revenue shortfalls — currently at Sh64.2 billion or a 5.5 per cent deviation from the revised target for the period.

“Tax revenues were largely below the revised target in all categories. Income tax was below target by Sh23.8 billion, VAT was below target by 10.4 billion and import duty and excise duty were below the revised target by Sh2.7 billion and Sh3.7 billion, respectively,” say the documents.

Similarly, external grants amounted to Sh27.4 billion against a target of Sh66.4 billion, representing an underperformance of Sh39 billion.

The documents attribute the drop in revenue to lower than expected income tax and VAT collection and challenges in the full implementation of the capital gains tax.

HEAVY BORROWING

Also, the government’s heavy borrowing last year had adverse effects, with expenditure on foreign and domestic interest payments rising above the target by Sh4.4 billion and Sh3.4 billion, respectively, according to the documents.

Foreign interest payments amounted to Sh33.3 billion, compared with Sh15.6 billion in the same period of 2013/14.

“Domestic interest payment totalled Sh139.6 billion, which was higher than the Sh119.2 billion paid in the corresponding period of the previous financial year, mainly due to higher borrowing as a result of investments in infrastructure spending,” say the documents.

By the end of June 2015, the government had collected a total cumulative revenue, including appropriations in aid, amounting to Sh1.2 trillion against a revised target of Sh1.17 billion.

To increase surveillance and enhance efficiency in funds use by government departments and other State agencies, the Treasury will fast-track the establishment of a Treasury Single Account from which all payments will be processed, in compliance with the Public Finance Management Act.

The document forecasts the economy will grow by 5.8 per cent to 6 per cent in the 2015/16 financial year, and will pick up to 6.5 per cent in 2016/17 financial year.

RISKS

But the Treasury CS admits that many risks to the economy remain.

While the Treasury targets inflation to decline gradually in 2015 and be at 5 per cent by 2017, it warns of imported inflation — with fluctuations in exchange rate, owing to a possible strengthening of the US dollar against the shilling.

The Treasury also notes that uncertainty in the international oil market is likely to affect the economy.

“Internally, public expenditure pressures — particularly wage related recurrent expenditures — continue to pose a fiscal risk. In addition, the impact of insecurity on tourism and the El Niño rains in late 2015 could disrupt economic activities, further affecting exports and agricultural production,” it says.

To contain the rising wage bill in the public sector, the Treasury has frozen recruitment of civil servants, with the exception of those in essential services such as teachers, lecturers, health workers, police and security personnel.