Navigating huge recurrent bill a headache for Rotich in 2018 Budget

The reading of the 2017/18 Budget by the Cabinet Secretary this year has come early. Unlike in previous years when it was read in June and in harmony with the rest of the East Africa countries, the budget calendar had to be revised due to the upcoming general elections in August. Consequently the budget will be read in March. The Cabinet Secretary and his team most probably have burnt the midnight oil to meet the deadlines in the revised budget calendar. The theme for this year’s budget is “consolidating economic gains in an environment of subdued global demand’’. With this budget, it is envisaged that the Government will be looking to strengthen or enhance the gains that they have made so far in facilitating economic growth. The current government’s focus areas over the last four years have been; to create a conducive business environment, to transform the agricultural sector and ensure food security, to develop infrastructure, to provide quality and accessible social services and to entrench devolution.

Some of the gains that Government have highlighted across these focus areas is the development of the standard gauge railway (SGR), the development of new roads and the rehabilitation of existing ones, the increase of electricity to the national grid and enhanced electricity connection and the completion of the first phase of the second container terminal at the port of Mombasa.

All these would contribute towards making Kenya a conducive business environment. In addition to this being the election year, there will definitely be an allocation to enable the IEBC conduct the elections.

Kenya’s economy is estimated to have grown by 6% in 2016 against an estimated global growth of 3.1 per cent. Based on these statistics, Kenya’s growth could be said to be resilient. According to the Cabinet Secretary, the sectors that supported this growth in the last quarter of 2016 were the hospitality industry with 13.8 per cent which is recovering, the transport and storage sector with 10.3 per cent, the information and communication sector with 8.5 per cent and wholesale and retail trade with 6.8 per cent. The agricultural sector did not grow by much but it is envisaged by Government that it will sustain the economic growth momentum. Given the current drought situation in the country, the ability of the agricultural sector to sustain the current economic growth may be brought to question. Over the last four years, Government has made budgetary allocation toward transforming the agricultural sector to move away from subsistence farming to agribusiness and also mechanize to improve efficiency and therefore output.

The current drought situation which we seem to have been unprepared for brings to question the trickle-down effect of this allocation to the agricultural sector. Based on the statistics from the Kenya National Bureau of Statistics, the growth patterns of various sectors have been varying over the years. It may seem that the drivers of economic growth in Kenya over time will keep changing depending on the various factors impacting the sector. The financial and insurance sector has for instance in 2016 experienced reduced growth which may be attributed possibly to the interest rate cap that was introduced following the amendment of the Banking Act.

In this year’s budget, Government may not possibly be able to reduce on recurrent expenditure given the increase in wage bill following increased salaries for doctors and lecturers and also the expenditure going into the election. It is however worth noting that the Public Finance Management Act 2012, provides that at least 30 per cent of national government budget should be allocated to development expenditure. Possibly we need to see an increase in this percentage over the coming years if we are to realize vision 2030.

The writer is a Senior Tax Manager with Ernst & Young