Kenya lures donors to support ambitious budget plan

 

By James Anyanzwa

Finance Minister Robinson Githae last month tabled what is widely seen as a populist budget with his attention focused, probably, on the General Election.

The minister unleashed plenty of goodies to the poor and the marginalised groups and left them smiling with no tax to pay in return.

But as Githae moved to appease the masses the agony of a financial backlash cannot be underscored.

He immediately raided landlords with plans to recover about Sh90 billion in rent tax.

But even as the minister reviewed his financing options, the glaring deficit in the books could not be narrowed further without a plea to the development partners.

When the development partners gathered in Nairobi, barely a fortnight ago, during the fourth development partnership forum, the World Bank expressed concerns that Kenya was, indeed, thriving beyond its means.

“Kenya is living beyond its means,” noted Johannes Zutt, World Bank Country Director, adding that,” The development partners are willing to help. While our contribution to government spending is small, we continue to play a large role in development in various sectors.”

The message could not have come at the right time and with a sigh of relief to Mr Githae as he planned to borrow Sh169.3 billion from the development partners to finance part of the ballooning budgetary deficit.

The development partners’ contribution to the budget during the 2012/2013 financial year is expected to reach Sh225 billion, representing a 22.9 per cent growth.

During the meeting with donors, Prime Minister Raila Odinga also appealed to them to help finance elections scheduled for March 4, next year.

“Very large resources are required to conduct fair and free elections. The Government is providing all it can out of its limited budget. We call on you to extend financial support to fill any gaps that may remain,” he said. The latest household survey (2005/2006) shows that 46 per cent of the Kenyan population live under the national income threshold of poverty.

Githae tabled an ambitious Sh1.45 trillion budget of which Sh1 trillion goes to recurrent expenditure, with only partly Sh451.7 billion going to development.

The minister expects to finance his budget through Kenya Revenue Authority (KRA) ordinary revenues (Sh870.5 billion), other ordinary revenues (Sh86.1 billion), external grants (Sh56.2 billion), External loans (Sh169.3 billion) and domestic borrowing (Sh277.8 billion).

But experts have challenged KRA’s ordinary revenue target of Sh870.5 billion since the taxman is expected to fall short of the target by Sh25 billion in 2011/2012 financial year.

 “ It is not clear how this ambitious target can be met as the Minister did not propose any far-reaching tax measures,” said Kuria Muchiru, Country Senior Partner for PricewaterhouseCoopers.

Other critical issues with regard to collections of revenue include challenges associated with collecting Appropriations-in-Aid revenue by government ministries and departments and low absorption of donor funds due to rigid procurement procedures and capacity constraints.

It is feared domestic borrowing of nearly Sh278 billion will stretch the debt limit.

Even though projections are that revenues will fall during the 2012/2013 financial year, the country has maintain large allocations for infrastructure, health, education and security.

 Allocation to infrastructure rose by 21 per cent to Sh268.1 billion, while a record Sh233 billion was allocated to education.

The energy, infrastructure and ICT sectors lead with a 24 per cent allocation on account of on-going road and energy projects.

This is followed by education at 21 per cent, with expenditures on Free Primary Education and teachers’ salaries taking lead.

Kenya borrowed heavily and spent the money on building roads, expanding ports and airports, digging geothermal wells, building new rural electrification networks and rehabilitating power transmission stations.

High import prices and low export earnings have widened Kenya’s trade deficit, and this, together with excess of investments over savings has resulted in a current account deficit.