National Treasury. FILE PHOTO | NMG
Summary
- The Treasury has opted to borrow more after an August audit revealed that the Kenya Revenue Authority (KRA) will miss its targets in a business environment plagued by job cuts and reduced corporate profits.
- The Budget outlook paper tabled in Parliament yesterday shows that the National Treasury has revised its borrowing target to Sh640 billion for the year ending June next year, up from the Sh607 billion it had unveiled in the June budget statement.
- Treasury will now target a deficit of 6.2 percent of gross domestic product (GDP) for the current fiscal year, which runs from July to June, compared with a forecast of 5.6 percent in June.
The Treasury has opted to borrow more after an August audit
revealed that the Kenya Revenue Authority (KRA) will miss its targets in
a business environment plagued by job cuts and reduced corporate
profits.
The Budget outlook paper tabled in Parliament
yesterday shows that the National Treasury has revised its borrowing
target to Sh640 billion for the year ending June next year, up from the
Sh607 billion it had unveiled in the June budget statement.
Treasury
will now target a deficit of 6.2 percent of gross domestic product
(GDP) for the current fiscal year, which runs from July to June,
compared with a forecast of 5.6 percent in June. It said the revision to
its forecasts was driven by poor revenue collection and expenditure in
2018/19.
“We are faced by ... emerging expenditure
pressures, the underperformance of revenue and rising public debt and it
is therefore, inevitable to tighten public spending,” the Treasury
said. “In light of these challenges, the revenue projections for the
financial year 2019/20 have been revised taking into account lower
projection based on account of the Sh123 billion shortfall in financial
year 2018/19 and revenue performance by end of August 2019”.
KRA
was expected to collect Sh1.877 trillion in tax from lines like company
profits and workers’ salaries, but the target has been lowered to
Sh1.852 trillion barely four months into the new financial year that
started on July 1. The cuts point to the extension of reduced sales and
profits in corporate Kenya that have persisted since 2017 when the
country went through a bruising General Election and two presidential
elections after the first one was annulled by the Supreme Court.
Top firms have in recent months put on hold the hiring of new
staff in an economy that has also witnessed a string of job losses
affecting nearly all sectors.
Reduced profitability in
corporate Kenya, which is underlined by a record number of firms listed
on the Nairobi bourse issuing profit warnings, has also hurt income tax
collections.
The fiscal deficit for 2019/20 will be
financed by net external financing of Sh331 billion, domestic borrowing
of Sh305.7 billion and other net domestic receipts of Sh3.2 billion, the
document said.
Economists and political analysts have
criticised President Uhuru Kenyatta’s government for increasing
borrowing since coming to power in 2013.
Total public
debt has jumped to 55 percent of GDP from 42 percent before he took
office. The government says the higher borrowing funds infrastructure
projects. The Treasury is also trying to cut spending amid the struggle
to raise revenue. It announced budget cuts on what it termed unnecessary
expenditure, such as trips abroad by officials and advertising by
government departments, to rein in a gaping fiscal deficit.
The
cuts will accompany a freeze in both hiring and pay increases as well
restrictions on new development projects, which will now require
Treasury approval. However, the Budget outlook paper shows that Budget
expenditure for the year to June will stand at Sh2.84 trillion, from the
June forecast of Sh2.8 trillion, suggesting the cuts are unlikely to
shrink State spending.
dmwere@ke.nationmedia.com
dguguyu@ke.nationmedia.com
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