Kenya to cut budget deficit to 4.8pc of GDP in 2020/21, pledges to trim expenditure

Kenya will reduce its budget deficit to 4.8 per cent of GDP in its 2020/21 (July-June) fiscal year from 5.6 per cent this financial year.

Reports by Reuters say that, Julius Muia, the principal secretary at the Treasury, told a budget preparation meeting that economic growth will slow down to 6.0 per cent this year from 6.3 per cent in 2018.

Acting Treasury CS Ukur Yatani said the country would achieve this by cutting unnecessary expenditure, such as trips abroad by officials and advertising by government departments, in an effort to cushion fiscal deficit.

“The cuts will be brutal and will be sustained,” he told a meeting to plan the government’s budget for the next fiscal year, adding that he expected the deficit to drop to 3.5 per cent of GDP by the 2022/23 fiscal year.

In June this year, Kenya set an ambitious target to lower its fiscal deficit to 3 per cent of the Gross Domestic Product (GDP) in the medium term (2022/23) in a bid to reduce public spending and limit borrowing.

The National Assembly Budget and Appropriations Committee had estimated Kenya’s fiscal deficit for the 2019/20 financial year, whose budget is scheduled to be tabled before the House by the suspended National Treasury Cabinet Secretary Henry Rotich, at 5.6 per cent of the country’s GDP.

The 5.6 per cent target for 2019/20 represents a 0.7 per cent decline from the current financial year’s fiscal deficit of 6.3 per cent. National Treasury is hoping to sustain the reforms to attain the 3 per cent mark by the financial year 2022/23.

The ambition to scale down fiscal deficit is part of the country’s effort to improve compliance the regional macroeconomic convergence criterion which requires member countries to attain a fiscal deficit of not more than 3 per cent of respective Gross Domestic Product indices and a headline inflation rate of less than 8 per cent.

The East African fiscal convergence framework also requires members of the East African Community bloc to manage public debt below 50 per cent of their Gross Domestic Products in Net Present Value Terms and maintain reserves of at least 4.5 months of imports as precondition for entry into a monetary union by 2024.

The 2019/20 budget estimates set national government expenditure ceiling at 1.8 trillion with Parliament budget capped at Sh43.8 billion.

County governments and the Judiciary are set to receive an estimated Sh 372.6 billion and Sh 18.9 billion respectively.

In nominal terms, the 2019/20 budget as share of GDP is projected to reduce to 28 per cent compared to 32.4 per cent in the current fiscal year.

The taxman is projected to raise Sh 2.1 trillion in revenue under the 2019/20 financial year after revenue projections were revised upwards by Sh 35 billion.

President Uhuru Kenyatta’s Big Four priority projects of affordable housing, food security, universal healthcare and enhanced manufacturing will cost in excess of Sh 450 billion representing 14.6 per cent of the 2019/20 budget.