Kenya may hit taxpayers harder in bid to plug budget deficit

Jonathan Stichbury, (left) Managing Director and Chief Executive Officer Pinebridge Investments consults with Edward Gitahi (right) senior investment manager when Pinebridge Investments launched financial outlook they say fiscal spending pressure to fund ambitious infrastructure projects could result in higher taxes in 2016. PHOTO: WILBERFORCE OKWIRI

NAIROBI: The Government could raid the pockets of more taxpayers this year as it moves to plug its huge budget deficit, an asset management firm has said.

In its outlook for 2016, Pinebridge Investments reckoned that because the Government has little leeway to borrow either locally or from the international markets, it will be left with no option but to increase the tax base.

Pinebridge CEO and Managing Director Jonathan Stichbury stated that the government, ;like many other Sub-Saharan African governments, is unlikely to seek Eurobond funding due to their high yields. He however, projected local borrowing to continue. “KRA will be keen to increase the tax base,” he said before adding that our tax base to Gross Domestic Product (GDP) ratio is still very low.

The firm also noted that there will be development borrowing where the country directly approaches another country such as China.

Nonetheless, in 2016, the economy is expected to grow at between 4.5 per cent and 5.7 per cent buoyed by infrastructural spending, financial and communication sectors.

Interests rates and currency exchange are also expected to remain within acceptable levels.

Pinebridge Senior Investment Manager Edward Gitahi said infrastructure will have ‘multiplier effects’ on growth as employment increases and attracts external investors. The momentum on infrastructure spending won’t slow down as counties become more efficient and both levels of government plan to build more roads.

On the oil price, Stichbury said prices are likely to go up: “A compromise may be reached where supply is cut back around the world and the prices start to rise,” he said before adding that this will be beneficial to the East African economies like Kenya that have proven reserves of oil.

“Fall in oil price has supported the currency. We have to keep an eye on oil price,” he said.

Stichbury also intimated that because drought tends to follow a year after El Nino, the economy might suffer this year should such be the case. On security, he believes that tourists must have realised that the insecurity incidents happening in Kenya are not isolated but a global phenomenon. “Tourists numbers are therefore picking up and will continue going up,” he said.

The outlook also showed that CBK was not likely to increase its benchmark rate as long as the currency remains stable. KBRR which is normally pegged on Treasury bills (T-bill) is also not expected to change significantly.

The East African economy is also expected to grow at 6 per cent unlike its West African counterpart which expects subdued growth of between 3 and 5 per cent.

And this being the election year, the investment firm expects both the national and county governments to step-up their infrastructural spending. The economy tends to do well a year before the election as the government goes on a spending spree.

The firm reckoned that the budget deficit is not too large to have significant burden on government finances.