Kenya expenditure plan set at KES 2 trillion in 2015/16

 

Mr. Henry Rotich_Treasury Cabinet Secretary

Mr. Henry Rotich, Kenyan Treasury Cabinet Secretary holding the proposed budget

The Kenyan government has made public its intention to stay on the path of expansionary budget with the release of next year’s expenditure estimates showing that public spending will rise by a quarter to KES 2.17 trillion ($ 21.5 b), an increase of over 25% from the 2014/15 budget of KES 1.6 Billion.

The increase in spending is largely attributable to focus on development projects in education, infrastructure, national security and agriculture, and the expenditure plan, which was made public at the end of a Cabinet meeting on Wednesday 22nd April, underpins the Jubilee government manifesto that focuses focus on Vision 2030 and the the government’s priorities under a five-pillar transformation agenda.

The Budget figures are however expected to attract varied opinions from the Kenyan public, who are keen on seeing economic growth and development filter through to their disposable incomes without being taken out through increased tax burdens.

The Government has in the previous year’s been criticized by the Public for reintroducing Value Added Tax on various household goods and services that were previously exempt, and more recently the Capital Gains Tax that has caused a stir within Capital Markets players regarding its implementation, and the fear that it may cause reduced volumes in the primary and secondary markets, thereby impairing Kenya’s hopes of being a financial hub.

The Cabinet under the Chairmanship of President Uhuru Kenyatta noted the fiscal year 2015/16 budget continues to focus on Vision 2030 and the Jubilee Government’s priorities under a five-pillar transformation agenda.

The agenda targets; creation of a conducive business environment, investing in agricultural transformation and food security, investing in first-class transport and logistics, investing in quality and accessible healthcare and education services as well as strengthening the social safety net to reduce the burden on households.

It also seeks to support devolution for better service delivery and enhanced economic development and revival of the tourism industry.

According to the statement, the budget has further made provision for funding to critical programmes aimed at strategic interventions in various areas such as leasing of medical equipment, road annuity programme, National Youth Service (NYS) re-engineering and youth empowerment.

Other areas the State would seek to intervene through the budget are construction of Sports Stadia, land titling, energy and slum upgrading/health programme.

The Cabinet statement explained the economy is expected to grow at 6.9 per cent initially, picking up to 7 per cent over the medium-term while inflation would be maintained within Government target of 5 per cent over the medium term.

winners and losers

The State House briefing shows that energy, infrastructure and ICT sectors will for the first time overtake education in spending having been allocated 27.3 per cent of the budget compared to 21.7 per cent in the current fiscal year.

This means a total of KES385.41 billion has been earmarked for the sectors up from KES256.81 billion in the current financial year or a 50.08 per cent increase. The money is expected to go into the mega infrastructure projects such as construction of Standard Gauge Railway and improvement of road networks that Mr Kenyatta’s Jubilee administration has put top on its agenda.

Uhuru Launching Costruction of Standard Gauge Railway

President Uhuru Kenyatta launching costruction of standard gauge railway

The cabinet briefing shows that National Security share of the budget will rise to 8.2 per cent or Sh114.07 billion from the current 7.7 per cent (Sh90.72 billion). Higher spending on security comes against the backdrop of persistent deadly terrorist attacks that has claimed more than 400 lives since Mr Kenyatta took over the presidency two years ago.

“The interventions specifically target modernisation of the military and the police to give them adequate capabilities to deal with and vanquish the security threats arising from terrorism,” said the cabinet briefing.

Increased spending on infrastructure and security in the coming year has, however left other key sectors such as agriculture, health, education, social protection, environment, commercial affairs, public administration and governance with less money as a proportion of total spending, according to the Budget Policy Statement 2015/16.

Budget Deficit: Increased Collections, Debt and Taxes?

The more than KES400 billion budget expansion sets the government on the path to intensifying its revenue raising efforts or borrowing to finance its obligations.

The Treasury’s Budget Policy Statement (BPS) for the 2015-16 financial year shows that the estimated budget deficit for the next financial year will go up to Sh479.7 billion from an earlier estimate of Sh383.7 billion, prompting the increase in both domestic and foreign borrowing targets.

The deficit financing is expected to increase Kenya’s public debt. According to the latest central bank statistics, Kenya’s domestic debt at the end of February stood at Sh1.335 trillion, while external debt as at mid-December stood at Sh1.17 trillion.

Deficit as a percentage of GDP in 2015-16 will still be lower compared to the current financial year, at 7.4 per cent compared to eight per cent.

Experts have, however, warned of the need for the government to reduce borrowing and to keep a firm grip on spending, especially taking into account that there will be additional spending pressure as the next general election approaches.

Though the expenditure plan does not speak to the revenue targets and how these will be reached, the issue and uncertainty around increased taxes or reduction of items on the VAT exempt list remains a key concern for Kenyan Households.

The reintroduction of VAT on essential commodities during the 2013/14 and 2014/15 financial years remains fresh in Kenyans’ minds, the event spurred inflation and raised uproar from the public questioning the move.

There is however a lot of headroom for the tax collector during the 2015/16 financial year with the implementation of financial reporting systems across government agencies to tighten revenue leakages, automation of most public services (digitization is government’s key priority), the effect of implementation of Capital Gains Tax in 2015, and widening the tax net on several carefully chosen tax sources.

With the economy expected to grow at over 5% in 2015/16, it is widely hoped that the increased economic activity, coupled with devolution benefits and infrastructure spending will form a solid base for increased revenue collections by the taxman.

The State said tax reforms were expected to raise total revenues to 20.7 per cent of gross domestic product from the National Treasury’s target of 20.4 per cent for 2014/15. The budget proposal must now be approved by Parliament. The National Treasury Cabinet Secretary will present the 2015/16 budget to Parliament in June.