Treasury raises borrowing target by Sh168 billion

Cabinet Secretary, National Treasury & Economic Planning, Njuguna Ndung'u.  

Photo credit: File | Dennis Onsongo | Nation Media Group

The government has raised its borrowing target for the current financial year by Sh168 billion on projection of lower tax collection that has seen ordinary revenue forecast revised down by Sh210 billion.

The Treasury projects poor revenue performance during the year that ends June 2024, following a weaker start during the first five months of the financial year, when the Kenya Revenue Authority (KRA) collected just 34.6 percent of its 2023/24 revenue targets. This was down from a 40 percent collection rate during a similar period in 2022/23.

The Treasury now says it plans to borrow Sh886.6 billion during the 2023/24 financial year, up from the target of borrowing of Sh718.9 billion as presented in the original budget in June last year.

The Treasury disclosed the new borrowing target last month in a document analysing global and domestic economic developments, ahead of preparation of the next financial year’s budget. The Treasury noted, in a presentation, that the government experienced revenue shortfalls during the first four months of the 2023/24 financial year.

“The budget deficit including grants projected at Sh886.6 billion (5.5 percent of GDP) from the Budget Estimates of Sh718.9 billion (4.4 percent of GDP),” Treasury noted in a presentation on December 13.

The disclosure puts the government off balance in its drive to cut borrowing and finance the budget through alternative mechanisms such as the Public Private Partnerships (PPP) and growing revenues generated domestically, amid growing public debt service burdens for the exchequer. In the four months ending October 2023, the ordinary revenue collection of Sh713.9 billion by KRA fell below target by Sh59.1 billion, Treasury observed.

But the latest report by KRA shows that in the five months ending November 2023, the taxman collected Sh963.7 billion, which was 34.6 percent of its annual target of Sh2.787 trillion for the 2023/24 fiscal year.

During a similar period in 2022/23, the revenue administrator had collected 40 percent of the Sh2.145 trillion in the year’s annual target.

Treasury’s document shows that in view of the revenue underperformance despite a raise of taxes and levies brought by the Finance Act, 2023, it has cut down its ordinary revenue forecast for the current financial year from Sh2.787 trillion to Sh2.5768 trillion.

“Revised Fiscal Framework for the FY 2023/24 Budget, therefore, has total revenues projected at Sh3,047.6 billion (18.9 percent of GDP) with ordinary revenues projected at Sh2,576.8 billion (16.0 percent of GDP) and Ministerial Appropriations in Aid projected at Sh470.8 billion (2.9 percent of GDP),” the Treasury stated.

This shows that the government is going slow on its ambitious ordinary revenue targets and has cut it by Sh210 billion.

This has widened the budget deficit and caused the Treasury to prepare for even more borrowing from domestic and external creditors to plug the deficit, a backward step for the government which had laid down an aggressive framework against borrowing to finance the budgets.

The Sh886.6 billion borrowing will translate to 5.5 percent of Kenya’s GDP and will be a 1.1 percentage points increase from the targeted borrowing of Sh718.9 billion that was 4.4 percent of the GDP. In 2022/23, the government borrowed a total of Sh437.55 billion from domestic sources and $2.12 billion (about Sh297 billion based on exchange rates by end of June 2023) from external creditors, totaling more than Sh735 billion.

Should the government borrow the Sh886.6 billion as projected by the Treasury in the current financial year, the borrowing will be more than what the government borrowed in 2022/23 by about Sh150 billion.

“Actual net domestic cumulative borrowing for FY 2022/23 was Sh437.55 billion against a target of Sh475 billion (92.1 percent performance),” Treasury stated in highlights of 2022/23 borrowing.