The Institute of Public Finance (IPF) Kenya has urged National Treasury to freeze all new public projects and reschedule public debt repayments. This to free more money to finance development and recurrent expenditures.
In a Shadow Budget 2021 document, dubbed “Road to Recovery”, published by IPF–Kenya in partnership with Oxygène Marketing Communications, the policy think tank warns of a dire financial crisis if urgent economic and fiscal management recovery strategies are not put in place.
Kenya Public Debt Burden
Available data shows that Kenya’s Debt repayment rate (Principal and interest) is expected to hit some KSh 1.023 trillion by 2021/22, representing about 60% of all taxes collected.
James Muraguri, IPF Kenya CEO, while launching the shadow budget, said Kenya had passed all debt sustainability thresholds, putting it on a downward debt spiral. Such breaches, he said, places Kenya on a sloppy path that necessitates the adoption of recovery plans and a robust Debt management policy.
Ms Magdalene Kariuki, Oxygène Marketing Communication Head of Public Policy & Regulatory Affairs, urged for a more conscientious approach in engagement between state and non-state actors in the joint review and debate over national fiscal policy.
The Shadow Budget attributes persistent fiscal deficits to excessive expenditure pressures coupled with falling revenue to GDP levels. IPF Kenya now wants the government to do a comprehensive review of all tax measures to maintain a predictable tax environment.
According to Muraguri, the 2021/22 Shadow Budget for Kenya has been prepared against frosty relations between the state and private policymakers in the budget-making process.
There is also limited access to budget information, especially those touching on public debt contracting and service repayments as well as public procurement of goods and services.
The International Monetary Fund (IMF) has downgraded Kenya’s debt carrying status, which indicates increased liquidity risk as more tax revenue is spent on debt repayment. The tax to GDP ratio has been falling in recent years, meaning Kenya is becoming increasingly reliant on debt.
The Shadow Budget report indicates that the actual fiscal deficit, including grants, has averaged 8.0 % in the 2016/17 budget cycle to 2019/20 compared to an average target of 7.0 % during the same period.
This trend shows the inability of the National Treasury to forecast future revenues and fiscal deficits realistically.
Considering the adverse effects of Covid 19, the Shadow Budget notes that the National Treasury ordinary revenue collection target of KSh. 1.78 trillion in 2021/22, which is higher compared to Ksh 1.57 trillion collected in 2019/20 and 1.59trillion anticipated in 2020/21 is too ambitious.
The proposed revenue target set for 2021/22 is 10% higher than last year and also appears unrealistic based on the medium-term historical performance of revenue.
The Shadow Budget report suggests the government should maintain its total revenue projections at KSh 1.8 trillion as contained in the FY 2020/21 revised budget.
The Executive Budget is set to increase by KSh145 billion or 5 % to KSh 3 trillion in 2021/22 compared to KSh 2.85 trillion in 2020/21. This increase will result in further widening of the fiscal balance and more accumulation of public debt stock.
The equitable share to the counties in FY2021/22 is projected to increase at KSh 370 billion after stagnating at KSh 316.5 billion in 2019/20 and 2020/21.
Conversion of conditional grants to equitable share does not have any effect on more resources to the counties. Ms. Kariuki noted that a rapidly changing political landscape affected allocation to counties with little regard to the average taxpayer.
The National Treasury proposes to contract the fiscal deficit by KSh 36 billion to KSh 930 billion in 2021/22 compared with KSh 966 billion in 2020/21 to be financed up to 70% from domestic sources and the rest from external loans.