Today’s budget reading comes as we go into President Uhuru Kenyatta’s final year in office, which threatens his legacy as that of overseeing Kenya’s largest debt budget ever.
Now that Treasury Cabinet Secretary Ukur Yatani has read the budget statement for the next financial year (2021/22), it is time to reflect on how the current budget ending this month has fared.
One importance of keeping history is that it helps us to understand the present and predict the future. Therefore, how does the last 10 months of FY 2020/21 look like?
2020/21 budget performance
When Mr Yatani read the budget statement on Thursday, he indicated that the government expected a total revenue (from taxes and loans) of Sh2.8 trillion between July 2020 to June 2021. To realise this target, he hoped to raise Sh1.6 trillion from taxes and fees charged by various government agencies from services such as issuance of passports, birth, and death certificates, certificates of good conduct, among others. Additionally, the CS planned to borrow a total ofSh1.2 trillion with a huge portion of it coming from the domestic market, that is 70 per cent of the loans with the rest to come from external lenders.
After eight months of implementation of this budget, the government faced a dilemma of increasing need for government spending and declining revenues. The revenue was not performing as expected due to the impact of the Covid-19 pandemic which severely affected critical revenue streams, especially in the services sector like the hospitality industry, transport and others.
Treasury, through the first supplementary budget, revised the budget upwards by Sh100 billion (4 per cent) to Sh2.9 trillion from the original estimates of Sh2.8 trillion. All this increase was to be financed by additional borrowing.
Actual revenue performance
A 10-month statement of revenues received and disbursed by Treasury shows that for the period between July 1, 2020 and April 30, 2021, Treasury received about two trillion shillings, this being 74 per cent of annual revenue expected by end of June 2021. This consists of Sh860 billion or 40 per cent of total revenue from loans and grants and Sh1.3 trillion or 60 per cent from all other government sources (taxes, fees, and charges). Majority of the borrowing that happened during this period, that is 85 per cent, came from domestic lenders with the balance coming from the external market.
The big question now is, how has the two trillion shillings received by government during the last 10 months been spent?
Actual expenditure performance
The numbers show that it has spent Sh841 billion on consolidated funds services (CFS), being about 78 per cent of total expenditure expected by end of the financial year. Funds appropriated to the CFS account are mainly used for public debt repayment. The expenditure on CFS represents about 40 per cent of total revenue raised during this period and about 71 per cent of total taxes collected by KRA.
This means that for every Sh100 that KRA collected from Kenyans for the period, Sh70 went towards repaying the country’s debt, and this figure is projected to rise in the next year as Kenya’s debt burden worsens.
The numbers further show that the government has spent Sh826 billion on recurrent budget out of Sh1 trillion planned for the whole year, representing performance of about 76 per cent compared to Sh258 billion spent on the development budget or 64 per cent of Sh401 billion planned for the year.
Counties, on the other hand, have so far received Sh240 billion out of Sh384 billion they are expected to receive for the whole year in terms equitable share conditional transfers, representing performance of about 63 per cent.
In summary, the FY 2020/21 ten-month report card for President Kenyatta looks like this.
Revenue report card
The average 10 month-revenue performance is at 64 per cent, with domestic borrowing leading followed by tax revue and external loans and grants at 85 per cent, 81 per cent and 27 per cent respectively. It is overly ambitious to expect the government to move revenue mobilisation from 64 per cent to 100 per cent in two months. To meet this target, the easiest way, as has been the tradition of this government, is to incur additional short-term loans that are quite expensive.
Expenditure report card
With only two months to the end of the current financial year, the government has realised about 78 per cent of the total planned expenditure for the whole year. Top in performance is the CFS account which is majorly used to repay the country’s debt at 78 per cent, followed by recurrent expenditure for the national government, spending on development and disbursements to the counties at 76 per cent, 64 per cent and 63 per cent respectively.
The budget numbers depict a serious problem in terms of budget credibility. There is a likelihood that government will not meet its stated priorities because the budgets are not being implemented as planned.
As all this happens, the biggest casualty is the county governments and the development budgets. The government's priority for this period seems to be repayment of public debt with counties being the least of its worries.
This trend of prioritisation of public debt repayment is the same in the Sh3.7 trillion budget presented by Mr Yatani. It is shocking that at a time when the government is facing challenges in revenue performance, instead of cutting down the expenditure, it has increased the budget by Sh800 billion. Majority of this budgetary increase is to cater for ballooning debt service repayment.
This implies that Kenyans must be ready to lose part of their current income to the State through additional taxes. Additionally, the government has already planned to borrow more funds from the domestic market, which is going to make it very difficult for individuals and small business to access credit locally.
For the government to borrow more money, the current debt ceiling of sh9 trillion must be revised upwards to create space for more debt. The current debt stock stands at Sh8.4 trillion; government will require more than Sh1 trillion in new debts to implement the presented budget.
Treasury should tap into tax exemptions currently at over Sh500 billion, which is considered one of the highest levels globally, for more revenue. Moreover, it should prioritise and fast-track transfers to the counties and expenditure on development budget to realise the promises it made to the people.