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Sh236b budget deficit worries economists

By | Jun 18th 2011 | 2 min read

By John Oyuke

Economists have raised concern about financing impact of the country's Sh236.2 billion budget deficit.

Gerrishon Ikiara, a lecturer at the University of Nairobi, argues that even as the State prepares to implement this year’s budget, financing the deficit will be a challenge if projected revenue collections fell short.

"There are concerns of how the deficit will be financed and whether it might lead to an inflationary spiral," questioned Ikiara.

This year’s budget at Sh1.155 trillion is the highest in the country’s history and the first to go over the trillion-mark.

The estimates include recurrent expenditure of Sh754.4 billion and development expenditure worth Sh398.6 billion.

The targeted deficit of Sh236.2 billion (7.4 per cent of GDP) will be financed through Sh119.5 billion domestic borrowing, while the remainder of Sh116.7 billion is expected to be sourced from foreign financing.

Ikiara said the large budgetary deficit could lead to excessive borrowing from the domestic sector, crowding out the private sector and thereby undermining its envisaged role in sustaining economic growth.

Ikiara, a former Permanent Secretary in the Ministry of Transport was presenting a paper titled "The 2011 Kenya Budget: A Review of Economic Performance and Prospects" during the Institute of Certified Public Accountants Kenya (ICPAK) annual Budget Review Seminar in Nairobi.

The newly elected ICPAK Chairman, Patrick Mtange concurred the swelling debt book is a cause of concern.

He reckons that in the light of the Government’s revenue projections, the public debt book is expected to grow by a further Sh236 billion in the coming year. Mtange said Sh120 billion is likely to be raised from the domestic market.

"This will exert undue pressure on interest rates," Mtange warned.

He, however, acknowledged the budget presented by the Finance Minister Uhuru Kenyatta tends to inspire hope in the face of global economic challenges arising from the ever-increasing oil prices and a weakening shilling.

Ikiara also cautioned that reduced taxes in the petroleum sector would adversely affect the Road Maintenance Levy and the overall ability to maintain the momentum of expansion and improvement of the country’s road network.

Spur economy

The don, however, noted the expansionary budget could act as a stimulus for the economy in form of diversified activities, which are likely to counteract the negative effects of expected drought in many parts of the country.

"Sustained heavy expenditure on key infrastructural sectors will act as a key driver of the economy and help to attract local and foreign investments," he said.

Ikiara said the budget, which allotted Sh20 billion for implementation of the new Constitution and creating a devolved system of Government, would provide the launching pad for the attainment of Vision 2030.


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