National Treasury to Hold Public Sector Hearings on Financial Year 2020/21 Budget

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• Treasury  to contain budget deficit to 3.5 percent of GDP  in 2022/23 (FY 2020/21)
• Government borrowing has remained “negative” for 2019

The National Treasury will be holding three days hearings (15th to 17th January 2020) for public input on the Sector Budget Proposals for the Financial Year 2020/21 and the Medium-Term at the Kenyatta International Convention Centre (KICC), Nairobi.

Julius Muia, Principal Secretary, National Treasury in a public notice said, “The forum is intended to provide feedback on the Sector Budget Proposals in line with Article 201(a) of the Constitution as a requirement of the principles of Public Finance Management.”

In the budget proposals, the focus will be on the completion of ongoing projects and execution of the Big Four agenda ‘to ensure that citizens benefit from such public investments’.

The Sector Working Groups Budget Proposals are required to ensure that externally financed projects are in line with overall Ministries, Departments and Agencies (MDAs) priorities.

“To create fiscal space and guarantee appropriate phasing out of expenditure programmes, SWGs will be required to conduct a thorough review of all proposed MDAs Budgets for FY 2020/21 to ensure that they are not only directed towards improving productivity but also aligned to the achievement of the objectives of the “Big Four” Plan either directly as drivers or indirectly as enablers,” said Amb. Ukur Yatani, Ag. Cabinet Secretary, National Treasury & Planning.

Treasury plans to contain its budget deficit to 3.5 percent of gross domestic product (GDP) in 2022/23 (FY 2020/21) in the Third Medium Term Plan according to Yatani.

Treasury plans to achieve this target through expenditure control and policy measures include budget rationalization on non-core expenditures.

“To plug an envisaged deficit of 5.9% of GDP in the fiscal year 2020/21, Treasury will ratchet-up local borrowing to Ksh 369 billion from a projected Ksh 300 billion in the current fiscal cycle. At the same time, external borrowing will be reduced by Ksh 120 billion to Ksh 221 billion,” notes Faith Atiti and Stephanie Kimani, from the NCBA Research Team.

Their sentiments arise from an elevated public debt sustainability concerns stemming primarily from the recent accumulation of external commercial debt. 

Forcing Treasury to mull at a strategic shift back to the local debt market for the bulk of its deficit financing needs.

“While this adjustment may be welcome given rising foreign exchange risks, and its adverse implications for public debt, the threat of crowding out the private sector cannot be gainsaid. Increased local borrowing by Treasury may sustain liquidity allocation towards government securities as lenders wait for further improvement in the credit risk landscape. This will add to pressure from rising inflation expectations which may limit the scope for policy easing,” they note.

Further, Cytonn Investments, an independent investment management firm, says government borrowing has remained “negative” for 2019 (current fiscal year). During the year the government issued Eurobonds to retire the commercial loans that were maturing. 

It also substituted the debt ceiling that was previously pegged at 50.0% of GDP to an absolute figure of Kshs 9.0 trillion, indicating the growing appetite of the government for taking on additional debt. 

“The Government also raised its total revenue target by 14.2% to Kshs 2.1 trillion for FY’2019/20 which we doubt it will meet, thus exerting slight pressure on the domestic borrowing front to plug in the deficit,” Cytonn investments comments.

Government to restructure debt stocks by refinancing

Treasury CS Ukur Yatani says they have managed to design a Debt Policy and Borrowing Framework, improve the quality of debt management decisions, debt statistics, analysis, reporting and dissemination and commitment to financial planning, ‘is likely sustainably manage our debt obligation’.

“I also intend to restructure debt stocks by refinancing or substituting commercial elements with concessionary ones,” says the CS. 

Adding that “Going forward, I promise to ensure strict implementation of budgets. Ensuring there will be no commitment or over-commitment outside provided the budget.”

Submission of the Budget Policy Statement (BPS) to the Cabinet will be done on January 12 before taken to Parliament on February 14.

The functions of the Government have been mapped into ten sectors. These are:

1. Agriculture, Rural and Urban Development
2. Energy, Infrastructure and ICT

iii. General Economic and Commercial Affairs

1. Health
2. Education
3. Governance, Justice, Law & Order (GJLO)

vii. Public Administration & International Relations (PAIR)

viii. National Security

1. Social Protection, Culture, and Recreation (SPCR)
2. Environmental Protection, Water and Natural Resources