With battered businesses and reduced incomes because of the Covid-19 crisis, there were mixed reactions from MPs and budget experts on Thursday on how the government will finance the Sh2.79 trillion budget for the 2020/21 financial year.
While some National Assembly members, led by Majority Leader Aden Duale praised Treasury Cabinet Secretary Ukur Yatani for doing well in navigating a difficult economic environment by balancing his maiden budget, others believe it is too ambitious.
Minority Leader John Mbadi believes that it may not take long before the government comes back to the House with a supplementary budget.
At the heart of the concerns expressed by Mr Mbadi and Mr John Kinuthia, the lead researcher at International Budget Partnerships (IBP) Kenya, is how the government will collect the Sh1.62 trillion in ordinary taxes and appropriation in aid to finance the budget.
The figure is a 14 per cent drop compared with the target of Sh1.88 trillion in 2019/20 to be collected by June 30.
Mr Duale noted that the Sh53.7 billion allocated for the 8-Point Economic Stimulus Programme was a good start in rejuvenating the battered economy.
He, however, noted that a lot more interventions are still required depending on the depth and duration of the crisis.
“The Jubilee administration has developed a comprehensive stimulus package to take care of our vulnerable groups during these difficult moments. It may not be exhaustive as we know, but it is a good starting point. It shows that President Kenyatta’s government is sensitive to the plight of the people, especially the vulnerable,” he said.
Mr Duale also challenged Treasury to consider renegotiating the terms and conditions of existing loans. This, he said, should be with a view to striking a deal for a moratorium, including having a grace period of interest and principal repayments.
As of December 2019, Kenya’s public debt stood at Sh6.2 trillion, about 63 per cent of the Gross Domestic Product (GDP).
“We must ask countries like China to consider reducing the principal sum and waive interest for the loans,” Mr Duale said.
Mr Kinuthia noted that as people are laid off and businesses struggle to stay afloat due to Covid-19, the government will lose some of the revenue from income tax, VAT and corporate tax, the main sources of government collections.
He further said that tax relief measures announced by President Kenyatta in early April will reduce the revenue the government will raise from some of the tax sources.
“Reduced revenue projections and higher debt repayment will significantly affect funding for basic services such as health and education,” Mr Kinuthia said.
With the contraction of government revenue, he said, Treasury will be looking to finance a budget funding gap of Sh823.2 billion through domestic and external borrowing.
“This will be adding to Kenya’s high debt levels,” he said, noting that the increased appetite for borrowing will push Kenya’s debt level to over Sh7 trillion in the coming days.
He added that the recent negative credit rating by the International Monetary Fund (IMF) and other credit rating agencies such as Moody’s could make it harder for Kenya to get cheap credit.
“Kenya may have to pay higher interest rates if the government goes for loans such as Eurobond or syndicated loans from foreign commercial banks this year,” he said.
The government is expected to lose Sh26.8 billion in the last three months of 2019/20 following the elimination of income tax for people who earn less than Sh24,000 per month, and reduction of the tax rate from 30 per cent to 25 per cent for top income earners, the Parliamentary Budget Office says.
The reduction in corporate tax from 30 per cent to 25 per cent, it said, will see the government lose Sh45.7 billion.
Yesterday, Mr Yatani noted in his presentation that the government will lose a cumulative Sh172 billion in forgone taxes to cushion vulnerable Kenyans and the economy from the effects of Covid-19, even as he said that the country’s debt situation remains sustainable.
Mr Kinuthia also noted that it is likely that the government may not even meet the targeted revenue if Covid-19 containment measures remain in place for a long time.
Kitui Central MP Makali Mulu praised the budget, saying the proposals highlighted by the Treasury CS are pro-mwananchi.
“The only challenge is the underlying macroeconomic framework, and the assumptions are quite shaky, which might negatively impact the budget implementation,” he said.
He added: “There is a need to keenly monitor the assumptions as well as the macroeconomic framework and adjust accordingly.”
But Mr Mbadi described the budget as overambitious. “What the CS has just revealed to us is that we should now tighten our belts and expect tough times ahead,” he said.
“I don’t see us implementing this budget fully, and I hope it will not turn out to be a humanitarian crisis.”
In his view, the government will be required to borrow more from the domestic market to meet the expenditure.
Nonetheless, he praised Mr Yatani’s emphasis on stimulating the economy, noting that it is a good thing that “he has realised that we need economic recovery because it is not business as usual.”