Spending up as Treasury targets higher deficit
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By James Anyanzwa and Reuters Kenya’s overall fiscal deficit tripled to 1.8 per cent of Gross Domestic Product (GDP) in the first half of the 2009/10 year, compared with 0.6 per cent posted in the same period the previous year. A fiscal deficit occurs when government spending exceeds the revenue it generates. The Government is targeting a deficit of Sh101.9 billion ($1.33 billion), or 4.0 per cent of GDP for the entire year, on a commitment basis and excluding grants, indicates Treasury’s economic review. Significatntly, the Kenya Revenue Authority has been unable to meet its own revenue targets in the last few years. Most governments run fiscal deficits, but they are only useful if all the funds budgeted for are absorbed and utilised in sectors that can stimulate the economy. Most of the spending, in Kenya’s case, is related to the Economic Stimulus Programme (ESP), where most of the funds were released last month, but are likely to be rolled over into the next financial year, with just three months left to the June budget. This is because of the slow release and absoption of funds meant for development expenditure. Government expenditure and net lending, was Sh302.6 billion, against a Sh376 billion target. The Finance Ministry review further notes: "The Cumulative overall fiscal balance, on a commitment basis (excluding grants) registered a deficit of Sh45.3 billion (equivalent to 1.8 per cent of GDP) through end December, last year." Gross public debt rose to Sh1,115 billion, or 43.8 per cent of GDP, by the end of December, from 1,038 billion at the end of June, last year. External debt comprises 47.2 per cent of that and the remainder is domestic debt. Balance Of Payments The debt stood at Sh588.97 billion by end of December, while external was Sh525.50 billion. Balance of payments improved to a surplus of $552 million in November, last year from a deficit of $98 million in November 2008. Forex reserves held by the Central Bank of Kenya (CBK) grew to $3.934 billion, equivalent of 4.2 months of import cover, in November, last year, up from $2.869 billion, or 3.4 months of import cover, in November 2008. Meanwhile, the CBK injected a total of Sh12.75 billion into the banking system last week using reverse repurchase agreement securities against maturities worth Sh18.52 billion. Commercial banks borrowed Sh80 million from the overnight window and maintained an average of Sh7.89 billion in their clearing accounts at the Central Bank of Kenya (CBK) in the week to February 17, this year, compared with Sh7.14 billion held in the previous week. According to CBK’s weekly economic indicators report, the shilling on average depicted mixed trends against major international currencies. In addition, local market sentiments fuelled by political disagreement in the governing grant coalition partners also contributed to the erosion of the shilling’s value. Against the US dollar, the local unit depreciated marginally to exchange at Sh77.16 compared with Sh76.69 in the previous week.