Treasury CS Yatani’s headache over Sh841 billion budget deficit
Treasury Cabinet Secretary Ukur Yatani is facing the Herculean task of raising Sh840.6 billion to plug the budget deficit in the financial year 20201/21. Experts warn the government might sneak in predatory taxes to fund the extravagant Sh2.8 trillion budget.
To fill the Sh840.6 billion budget hole, Treasury will source Sh494 billion of the loan locally and Sh347 billion from the external debt market.
Treasury mandarins are working with the assumption that the anticipated reopening of the economy will lead to increased revenue collection.
But as things look, the Kenya Revenue Authority (KRA) might be forced to expand the tax band and improve efficiency to get additional revenues.
Economist Samuel Nyandemo argued Yatani bit off more that he could chew by outlining an expensive budget at a time revenue collection has dipped due to the fallout from Covid-19.
To finance the budget, he anticipates the Treasury to tax Kenyans more in what could erode the gains made through the various economic stimulus packages.
“But how is the government going to mobilise more cash from taxes when businesses have slowed? Top tax remitters like East Africa Breweries Ltd (EABL) are not making enough money since bars and clubs are closed,” he said.
Economist and investment analyst Aly-Khan Satchu told Business Hub there is no realist path for Yatani to plug the hole under the prevailing circumstances.
He said like a number of economists, he was baffled by the budget, which he felt paid attention to a different time, a time before Covid-19 when money was cheap and the living was so easy.
“Base line assumptions such as an increase in the Year-on-Year revenue mobilisation line item struck me as utterly divorced from the current reality, which, in my opinion, will not dissipate like a bad dream but stay much longer than the mandarins at Treasury seem to believe,” he argued.
“Certainly, the IMF and World Bank have come through but we might have ‘maxed’ them out. It seems to me that it is a racing certainty that the call will be higher than Sh840.6 billion and probably over Sh1 trillion.”
Satchu was sceptical the international markets would provide more than 10 per cent of that amount sentiments echoed by his counterpart Samuel Nyandemo.
In his maiden budget speech, Yatani announced government plans to scale down on commercial loans as part of Kenya’s debt management strategy.
It comes on the back of runaway public debt totalling over Sh6.2 trillion, just Sh3.8 billion shy of the nation’s Sh10 trillion GDP.
The CS said Treasury would target more concessional loans advanced on terms substantially more generous than market loans.
“The government is committed to implement the 2020 Medium- Term Debt Strategy which recommends a shift towards concessional external borrowing and lengthening of maturity structure of the domestic debt,” he told the two Houses of Parliament.
Nyandemo said top priority for the government is to seek for a loan moratorium of about one year that should give it breathing space to focus on essential service provision.
“Currently, we are heavily indebted which puts us in a risky position to finance the budget,” he said.
He questioned funds allocation to various sectors including the development of SGR, asserting that they were ill-advised.