Kenyan Economy to Grow Below 2.5 pc in 2020: Treasury

Kenyan Economy to Grow Below 2.5 pc in 2020: Treasury

Treasury Cabinet Secretary Ukur Yattani

Kenya’s National Treasury Cabinet Secretary Ukur Yatani says the country’s economic growth is likely to grow by less than 2.5 percent this fiscal year.

“Kenya’s economic growth is expected to decline to below 2.5 percent in 2020,” Yattani said in a circular to all cabinet secretaries on the guidelines for the preparation of the 2021/22 – 2023/24 medium-term budget.

“Revenue collection is likely to be adversely affected by the poor business environment occasioned by Covid-19 pandemic,” he said.

He exuded confidence that the economy would rebound to six percent in the medium term.

Further, he indicated that the economic policy that would inform the proposed medium-term budget will focus on cushioning the vulnerable households through targeted economic stimulus programmes.

“When the economy fully reopens, the targeted support will gradually be mainstreamed into the regular programmes …aimed at safeguarding livelihoods, job creation and economic recovery.”

According to the Treasury, interest and exchange rate stability “will be safeguarded over the medium term”.

They also expect inflation to be contained within the 2.5 percent to 5.0 percent band.

Total revenue is expected to improve gradually to reach 16.5 percent of the GDP in 2020/21 and 18/5 percent over the medium term and total expenditures decreasing gradually to 25.2 percent of GDP in the current fiscal year and to “remain broadly unchanged over the medium term.”

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Churchill Ogutu, an analyst with Genghis Capital says Treasury’s draft Budget Review Outlook Paper (BROP) has revised some key FY2020/21 budget metrics. 

He notes that the ordinary revenue target has been revised lower by Ksh 110.3 billion and Ksh 215.5 billion in FY2020/21 and FY2021/22, respectively on the back of Ksh 41.96 billion miss in the last fiscal year.

On the other hand,  it has revised upwards the income tax stream to Ksh 14.4 billion. 

“We think this preempts a recovery in the overall growth although the economy remains fragile (doubling in 2Q20 unemployment print to 10.4 percent and an anemic business environment).

On the other hand, Excise duty, Value Added Tax, and Import duty streams have been reviewed lower by Ksh 45.8Billion, Ksh 37.4Billion and Ksh 22.4 Billion, respectively. “These revisions mainly reflect the knock-on consumption and international trade in the Covid-19 fallout period.”

“Overall, fiscal consolidation remains elusive with the draft BROP estimating fiscal deficit at 8.4 percent and 7.3 percent in FY2020/21 and FY2021/22, respectively. If recent fiscal year trends are anything to go by, we expect negative surprise (higher fiscal deficits) to be realized,” says Ogutu.

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