By Deloitte Team
The Budget Statement presented on Thursday by Finance minister Robinson Githae set out the goals of the Grand Coalition Government in what will be its last budget.
One of its key goals is to strengthen the legislative and institutional frameworks in order to enable the economy fight against global economic uncertainties.
Secondly, the Government intends to carry on with President Kibaki’s good infrastructure development record.
Finally, the Minister stated the targeted economic growth, when reached will be spread down to the whole economy or what is commonly known as the trickle-down effect.
Ballooning budget
The total budget size is Sh1.46 trillion, continuing to grow at an alarming rate. Out of this amount, only 30 per cent relates to development expenditure. This does not bode well for our long-term growth as development expenditure is the real driver of long term economic growth.
However, our recurrent expenditure spend is still too high as compared to what was set aside for development.
Although the minister stated that the Budget was fully financed there is an overall fiscal deficit of 6.5 per cent of GDP or Sh250.3 billion to be financed through borrowing.
Key areas that have affected our economy in the past year have been inflation and the strength of the Shilling.
The minister seemed confident that these two areas are now being sufficiently dealt with and added that he expects inflation to continue to decline, indeed he stated that he would soon engage the Monetary Policy Committee to pursue the proposed inflation target of five per cent with an upper bound of seven per cent by end of June next year.
It will be interesting to see how this tighter focus on inflation will affect the rest of the economy as attempts are reducing inflation sometimes result in slowed economic growth.
On the shilling, the minister was just as bullish, pointing out that the reduction in oil prices would lead to strengthening of our currency. He did, however, state that the CBK would not constantly intervene in the market and would only step in to smoothen out erratic movements of the Shilling that do not reflect the market fundamentals. Our economy hinges on the following key sectors: infrastructure (energy, roads and rail), education, governance, health and agriculture.
The Government set aside Sh268.1 billion towards building roads, energy and improving the rail system.
In addition to that Budgetary allocation the Government will enact more Private-Public Partnership legislation focusing on improving infrastructure. Included in the infrastructural spend is the Government’s intention to allocate more resources to oil infrastructure. This is positive continuation of what the Government has already carried out in the past.
It was also clear the Budget Statement intends to be pro-business as the minister stated that the Cabinet would soon table in Parliament all outstanding business enabling bills.
This can only be positive for the economy as private sector growth is mandatory for boosting economic growth and Government revenues.
Hopefully, the bills that the minister was referring to will reduce not only the costs of running business in the country but also regulatory bureaucracy facing most businesses.
Access to credit is an important catalyst to any economy, Kenya’s is no different. Unfortunately the Budget Statement did not do enough to encourage credit institutions to lend more, save for setting out plans to expand credit sharing information mechanisms.
— Written by Sammy Onyango (CEO) and Gerald Olende (Tax Consultant), both of Deloitte East Africa.
