Kenya’s Fiscal Consolidation Plan Receives Setback FY 2020/21

Kenya's Public Debt Rise to Ksh 7.00 Trillion from Ksh 6.11 Trillion in 2020

Kenya’s National Treasury Thursday said its plan to promote inclusive growth through austerity measures to contain its expenditure has received a setback as the Covid-19 pandemic has severely impacted demand, resulting in curtailed operations globally.

“In addition to the adverse effects of COVID-19 Pandemic, the Kenyan economy is confronted by the impact of desert locusts and floods that have caused deaths, displacement and destruction of infrastructure across the country,” said 

As a result, Treasury’s Cabinet Secretary Ukur Yattani.

As a result, Yattani said the country’s 2020-2021 fiscal budget will have a deficit of 8.3 percent of GDP.

“Our fiscal consolidation plan has been adversely affected by the events over the last six months. It this respect we are now targeting a fiscal deficit of 8.3 percent of GDP in financial year 2019/20 from the previous figure of 6.3 percent of GDP.

In the financial year 2020/2021 the fiscal deficit is targeted at 7.5 percent of GDP and is expected to improve to 6.1 percent of GDP in financial 2021/2022.,” Yatani said in his budget statement presented to Parliament themed ‘Stimulating the Economy to Safeguard Livelihoods, Jobs, Businesses and Industrial Recovery.’

He was presenting a KSh2.7 trillion Budget for the year starting July 1.

Treasury expects a 2021 growth forecast at 5.8 percent and 6.5 percent by 2024.

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BUDGET DEFICIT

The minister said they remain committed to gradually lower the fiscal deficit to Ksh 768.8 billion or 6.1 percent of GDP in the financial year 2021/22 and further to Ksh 570.4 billion or 3.6 percent of GDP by 2023/24.

The fiscal deficit is equivalent to Ksh 840.6 billion will be financed through external and domestic financing.

External financing of Ksh 347.0 billion, or 3.1 percent of GDP; net domestic financing of Ksh 493.4 billion, or 4.4 percent of GDP and other net domestic repayments of Ksh 627 million said Treasury. 

“To achieve these targets, we will continue to contain growth in non-core recurrent spending and enhance our efforts in revenue mobilization.”

“Kenya’s public debt remains sustainable, we need to be cautious about future debt accumulation. Our focus, therefore, will be to strengthen the management of public debt to minimize cost and risks of the portfolio, while accessing external concessional funding to finance development projects.,” he added.

As a result, Kenya will spend Ksh 905 billion in repaying debt in 2020/21.

“The debt burden is projected to decline over the medium term in line with the fiscal consolidation plan under implementation.”

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ANALYSTS COMMENTARY

“With a rising debt servicing, this was supposed to be the budget that was meant to save the country from a crisis but it looks like it business as usual. Revenues for 2019/20 will underperform by nearly 200b meaning deficit will be 7%+ and that means more debt even before 20/21. The reversed projections are pie in the sky and cuts are unrealistic.

We are treating this debt issue normally; why it will treat us abnormally. I get it, you get it but the Government of Kenya can’t get it. This was the last budget for us to get real, forget the big four agenda, and fix the economy.

Too bad! DEFAULT,” Mohamed Wehliye, Advisor, Saudi Arabian Monetary Authority (SAMA).

“So, if we are talking about an economic recovery, that is not going to be possible because supply chains will not have opened up, meaning little stimulating effects. A pro-growth economic recovery is fallacious and pre-mature at this point is. Stabilization of the economy should have been the priority,” Tony Watima, an Economist in the Daily Nation.

“Budget was well balanced but I take into consideration that the funds to run this budget will be a challenge. Debt is a major concern in our country that needs to be looked at. As much as the CS mentioned that we are still in an acceptable threshold, I think this is a risk area that we need to look at very carefully,” Benson Okundi, Senior Partner, PwC Kenya.