The Parliament’s Budget and Appropriations Committee (BAC) in their submission on the estimates of the Budget2020/21 says that the growth estimates are overambitious. Kenya’s Ministry of Treasury had presented the Budget estimates to the National Assembly in late April with the BAC seeking views of the public in 12 counties.
Chairman of the committee Kimani Ichung’wah tabled a report on Estimates of Revenue and Expenditure for FY 2020/21. He says that the proposed budget is anchored on a GDP growth projection of 4.2% in 2020/21 based on a 2.5% growth projection in 2020 and approximately 5.8% growth in 2021.
Expenditures and Revenues
The total expenditure and net lending in the 2020/21 budget is estimated at Ksh2, 732.98 billion; with recurrent expenditure amounting to Ksh1,805.2 billion and development expenditure (including foreign-financed projects and conditional transfers to county governments) estimated at Ksh584.9 billion. The post-COVID19 Economic Stimulus Program will cost approximately Ksh53.74 billion.
Ordinary revenue in 2020/21 is estimated to decline to Ksh1,621.4 billion due to a drop in tax receipts and reduced business activities. COVID19 tax relief measures such as reduction of corporate tax from 30 percent to 25 percent, reduction of VAT from 16 percent to 14 percent will further dampen revenue collection.
Overambitious Growth Estimates
First, BAC laments that the 2020/21 budget estimates fail to capture the magnitude of the COVID19 pandemic. Instead of proposing measures to revamp healthcare, social safety nets, and address COVID19 intervention measures it was business as usual with the National government’s ongoing and new public investments getting the lion’s share.
In addition, BAC remains doubtful that total investment nationally will rise from 15.7 percent of GDP in 2019/20 to 21.6 percent in 2020/21 given that both revenues and expenditure for the same period will decline. There has also been reduced allocation to development spending with private investment expected to remain depressed as COVID19 effects persists through 2020/21. Therefore, BAC says that Treasury growth estimates remain overambitious.
The growth premise fails to adequately account for the impact of the health pandemic and relies on past investment decision PARTICULARLY THE BIG FOUR to pull the country through the ongoing crisis. For instance, cut flowers exports may record losses of about Ksh60 billion by end of 2020; coffee, tea, and fruits exports will record dismal performance; and tourism sector is battered due to restriction on international travel and movement.
The expectation in revenue shortfall implies that Treasury will need to finance the budget deficit by taking up foreign debt amounting to Ksh349.7 billion and net domestic borrowing of Ksh473.6 billion. BAC says Treasury should target cheaper financing from multinational and bilateral sources as increased domestic borrowing may crowd out Micro, Small, and Medium Enterprises (MSME). BAC further says that Kenya should renegotiate the terms of commercial loans to save on interest.
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