Kenya’s Fiscal Deficit Rising Sharply With Revised Economic Growth of 3% in FY20

Standard Gauge Railway Nairobi Terminus

President Uhuru Kenyatta and First Lady Margaret Kenyatta at Nairobi Terminus during the launch of Phase 2A of the Standard Gauge Railway. PHOTO I PSCU Oct 16, 2019.

Kenya’s fiscal deficit will rise sharply in the last quarter of 2020 according to NCBA Research with the National Treasury revising its forecast for the country.

With businesses disrupted due to the effects of the novel coronavirus, the subsequent economic fallout will take precedence, revenues are expected to deteriorate on two fronts, NCBA Research team said Tuesday in their Weekly Fixed Income Report dated 7 April.

“First, the decline in economic activity and therefore business earnings will markedly weaken government taxes. Secondly, the recent tax relief measures and other potential incentives by the government should also reduce tax collections.”

The National Treasury, on the other hand, says economic growth will slow to 3% or less this year from an earlier forecast of about 6%.

Treasury Cabinet Secretary Ukur Yatani estimates a projected loss of KSh172 billion in revenue for the year. 

“This will drastically drop to about 3% or even less, but we are going to give a firm figure when we will have taken on board the impact of this, maybe in the next one month,” Ukur Yatani said on Tuesday when he received a KSh2 billion cheque from the Director of Public Prosecutions Noordin Haji under the Coronaviris Emergency Respond Fund.

 

Ksh 2 billion from the Prosecution Fund Account to the Cabinet Secretary National Treasury
DPP Noordin Haji handing over a cheque of Ksh 2 billion from the Prosecution Fund Account to the Cabinet Secretary National Treasury Ukur Yattani PHOTO I ODPP Apr 7, 2020.

“It is evident that revenues are going to shrink. Countries are now revising their growth projections downwards and Kenya is not an exception,” Yatani said.

“For us to be able to manage the situation, we shall reallocate funds from the sub development projects to allow us to have a financial flow to deal with the pandemic,” he said.

With the government borrowing rated ‘negative’ by Cytonn Investments, risks abound from possible reallocation of funds in a bid to contain the spread of the Coronavirus.

“This is expected to further widen the fiscal deficit away from the projected decline to 4.9% of GDP in FY 2020/21. 

On the other hand, the Government raised its total revenue target by 14.2% to Kshs 2.1 trillion for FY’2019/20 which it cannot meet In the current market conditions and thus exert pressure on the domestic borrowing front to plug in the deficit,” Cytonn Investments said in its  Q1 2020 Review, Kenya Macroeconomic Outlook.

Unlike, the National Treasury and Central Bank of Kenya’s revised GDP estimates, Cytonn Investments says it has switched its outlook on 2020 macroeconomic environment from positive to negative depending on how fast the Coronavirus is contained. 

“Based on the impact on other economies, we believe that Coronavirus may have a 10.0% to 25.0% impact on GDP growth for the year,” said David Gitau, Investment Analyst at Cytonn.

Kenya Faces Deep Economic Contraction on Reduced Spending