Auditor-General Nancy Gathungu addresses participants during a retreat of the Senate Liaison Committee at Eka Hotel in Eldoret, Uasin Gishu County, on June 5, 2024.
Auditor-General Nancy Gathungu has rubbished the government’s revenue projections as “over-optimistic” and unrealistic amid fears they may excite insatiable borrowing to finance annual budgets in a damning assessment of the National Treasury’s fiscal planning.
Ms Gathungu, in a document to the Budget and Appropriations Committee (BAC) of the National Assembly, notes that the projections by the Treasury, which the Kenya Revenue Authority (KRA) struggles to meet, is an indicator of “inadequate revenue planning and forecasting.”
She warns that, if the unrealistic projections persist, the government will find it difficult to finance its annual budgets without borrowing locally and externally, effectively escalating the public debt. The document lays says that, for the past nine months of the current financial year,- the actual revenue collection stands at Sh1.59 trillion against a target of Sh1.968 trillion. This is a 60 percent achievement of the projected revenue of Sh2.62 trillion in direct and indirect taxes as well as Appropriations in Aid (AiA).
Given the scenario, KRA would need to collect Sh1.04 trillion for the remaining three months of the fourth quarter to meet the Sh2.62 trillion revenue projections for the current financial year, “which is highly unlikely given the current challenges.”
Sh3.9 trillion
The revelations come as the National Assembly approved the government’s Sh3.9 trillion spending plans for the 2024-2025 financial year against a revenue projection of Sh2.95 trillion.
This raises questions over the government’s fiscal discipline amid glaring missed revenue targets for the current and previous years. Included in the Sh2.95 trillion revenue projection is Sh302 billion to be raised in proposed new taxation measures as provided for in the Finance Bill 2024.
The new tax proposals have elicited widespread condemnation from a majority of Kenyans, including finance experts and lawyers, as too punitive to already overburdened taxpayers.
The Finance Bill is due for debate in the House this week via a report of the Finance and National Planning Committee that has been sifting through over 500 submissions on the Bill for the past two weeks.
The 2022 Kenya Public Expenditure and Financial Accountability Assessment report indicated that Kenya’s fiscal discipline is weakened by the unreliability of “aggregate revenue outturn caused by over-optimistic targets.”
In the next financial year that starts on July 1, 2024, the government has projected KRA to collect Sh2.95 trillion in ordinary revenue, a substantial increase of 12 percent from the 2023/24 projections of Sh2.62 trillion.
Revenue collections
An analysis of the last three financial years shows that the government revenue collections have grown by 28 percent from Sh1.6 trillion in 2020/21 to Sh2.06 trillion for 2022/23 financial year.
The expected increased borrowing will escalate the country’s public debt, currently slightly over Sh11 trillion, meaning that the government will continue to face difficulties financing its own recurrent and development obligations.
The 2024 Budget Policy Statement (BPS) had projected an expenditure plan of Sh4.2 trillion against a revenue projection of Sh2.95 trillion. However, the Treasury reduced the projections by Sh270 billion owing to missed revenue targets. The revised expenditure plans left a fiscal deficit of Sh703.9 billion that was to be financed through domestic loans (Sh377.7 billion) and foreign borrowing of Sh326 billion.
