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The Uhuru swansong: What could go wrong in his last full-year budget

By Dominic Omondi | May 18th 2021
President Uhuru Kenyatta. [PSCU]

On June 10, the Cabinet Secretary for National Treasury Ukur Yatani will read his second Budget under the coronavirus pandemic.

The next 12 months of the budget cycle will be critical to President Uhuru Kenyatta whose political legacy has already been jolted by a shocking High Court ruling against the constitutional changes that he had spearheaded.

He will be hoping that the 2021/22 Budget will anchor his economic legacy by stopping the spread of Covid-19 and then rebooting the investment environment by reviving businesses and jobs.  

This year’s Budget will be President Kenyatta’s last shot at attaining his campaign promises.

Apart from the Big Four agenda, the Jubilee government’s promises included a number of flagship projects such as the Lamu Port, which the President is set to unveil on Thursday.  

But thinking big might not be the right thing for Kenyatta right now. A confluence of the 2022 general election and the Covid-19 pandemic has made it difficult for the country’s fourth president to properly anchor his legacy, including his promise to grow the economy by double digits.

Forecasters project the economy will grow by seven per cent this year from a low of 0.6 per cent last year.

The electioneering period tends to be a tough period for the incumbent. Investors tend to be jittery, employing a wait-and-see approach, thus denying the country critical investments.  

It is also the time when citizens want to have their cake and eat it; voters expect to pay fewer taxes but want to be lavished with a wide range of campaign goodies from roads to bribes.

Amb. Ukur Yatani Kanacho Cabinet Secretary for National Treasury and Planning. [Wilberforce Okwiri, Standard]

In the upcoming 2021-22 financial year, which kicks in on July 1, this paradox has been heightened by a pandemic that has left in its wake major health and economic crises.

And just like in an election, there is a general feeling that the government needs to tax less but increase spending to prop up businesses that have been enfeebled by the pandemic. But this will only widen the budget deficit - the gap between projected expenditure and revenue.

A huge budget hole needs to be plugged by more borrowing, a source of rage for many Kenyans who are against an administration whose appetite for loans seems insatiable.  

Starting July, the National Treasury has estimated that it will borrow around Sh1.5 trillion, inclusive of borrowing for redemption

Loans that will be used for development projects will amount to around Sh1 trillion, excluding grants from donors.  

Experts have noted that due to the fear of voters’ outrage and a downturn occasioned by the pandemic, most of the revenue-collection measures highlighted in the Finance Bill, 2021 are generally aimed at deepening the tax bracket rather than widening it.

“It is basically saying those who have been paying, will pay more. Those who have not been paying, continue having your life,” said Dr Abraham Rugo, the country manager for International Budget Partnership.

Generally, there are the usual culprits of PAYE (Pay As You Earn) levied on permanent employees, corporate income tax against employers, import duty against importers, and Value-added tax (VAT) against consumption.

But specifically, the government’s low-hanging fruits will be fuel, alcoholic drinks, betting, cigarettes and financial transactions, such as loans.

Bread has also been slapped with a 16 per cent VAT as well as milk formula for infants.

Exportation of taxable services will no longer be zero-rated but exempt in what audit company KPMG, in an analysis of the Finance Bill, 2021, said “may be viewed as a measure taken by the Kenya Revenue Authority (KRA) to address the recent losses at the various courts.”

Pressure to flatter voters might see the Jubilee administration rush to complete some of its mega-projects, some of which are not even viable.

Unfortunately, this will leave out ordinary Kenyans, who analysts reckon, have not benefited from the various Covid-19 measures that were put in place after the country reported its first case of the viral disease last year.

James Muraguri, a public finance practitioner and the chief executive of the Institute of Public Finance Kenya (IPFK), a non-profit think-tank, noted that the current budget is long on big projects but short on the immediate concerns of ordinary Kenyans.

Investments in health by both national and county governments, Muraguri said, will be around Sh250 billion. This is roughly seven per cent of the total budget.

“We should have, first of all, worked very hard to respond to the pandemic, including how to cushion citizens,” he said.

International Budget Partnership boss Rugo for his part called it “a budget within a pandemic.”

“What one sees is almost like there is the usual budget that is going on particularly in terms of projects and then there is a top-up of the pandemic,” he said. 

Most of the measures that had been introduced to cushion Kenyans have lapsed even as the pandemic rages.

One measure that still remains is the credit guarantee scheme aimed at de-risking small businesses so they can get loans.

But Rugo argued that the guarantee scheme came too late when most of the businesses had already collapsed.

“It is easier to keep the companies alive than to revive them,” said Rugo, noting that it is going to take long to revive most of these businesses.

However, Dr Joy Kiiru, an Economics lecturer at The University of Nairobi, opines that because President Kenyatta is not seeking re-election, he might be forced to be more pragmatic in the upcoming budget.

A ballooning wage bill has for long been a source of profligacy. In addition to elections and the pandemic, other causes of a bloated budget - estimated at Sh3.6 trillion for the next financial year - according to Dr Kiiru, include poor development planning.

So far, it appears like CS Yatani has deflated pressure to increase the wage bill after he refused to honour a Sh83 billion payout to State officers for various collective bargaining agreements (CBAs).  

IPFK’s Muraguri, meanwhile, wondered why civil servants were pursuing CBAs when some of them might lose their jobs as a result of the possible restructuring of several parastatals under a programme that the government has with the International Monetary Fund (IMF).

The government can politely reject the push for increased wages even as it assures state workers that their salaries will not be eroded by an increase in the cost of living, according to Dr Kiiru.

Critics are already questioning whether the government is serious about the fight against the pandemic, a prerequisite for economic take-off.

The government has set aside some money to procure vaccines, but a big chunk of the vaccines will be donated. Muraguri is of the opinion that testing for Covid-19 should have been paid for by the government.   

The Finance Bill has also exempted medical equipment used to manufacture equipment such as ventilators, breathing appliances, and medicaments from VAT.   

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