Covid-19 leaves Treasury with 172bn budget hole

National Treasury Cabinet Secretary Ukur Yatani is walking a tight rope as he looks for Sh172 billion to plug the budget hole created by President Uhuru Kenyatta’s Covid-19 stimulus package.

While the top priority for Treasury technocrats is to cut as much as possible in the travel and hospitality budgets, Mr Yatani said that the ministry will not hesitate to also shave off part of the development budget.

“We are revising the budget and nothing will be spared, even development. We are suspending some projects to address the current situation and recovery of the income,” Mr Yatani told journalists at Treasury Building in Nairobi.

Though the Sh172 billion cash shortage figure is still preliminary, Mr Yatani said the situation is expected to get worse, and Kenyans should tighten their belts some more.

The Parliamentary Budget Office (PBO) has advised Mr Yatani to borrow Sh150 billion to cushion Kenyans from the expected economic shocks. PBO projects that Kenya could take a Sh120 billion hit on its revenues.

PURCHASING POWER

Mr Yatani, however, puts the figure at Sh172 billion in the year, translating to about Sh60 billion per month over the next three months.

“Worldwide, growth projections have been revised downwards. We had projected that our economy will grow at six per cent, but now we are talking about a modest three per cent and it can still come lower,” he said.

The CS said that the measures announced by President Kenyatta - including the lowering of the value added tax from 16 per cent to 14 per cent, removal of income tax for those earning Sh24,000 and less, lowering of turnover tax from three per cent to one per cent, Sh10 billion for the elderly and orphans, and the lowering of the Central Bank Rate (CBR) - are all geared at ensuring that Kenyans have money in their pockets — thus boosting their purchasing power.

Treasury has already received Sh7.4 billion from the Central Bank of Kenya (CBK) — realised from the mop-up of the old Sh1,000 banknotes — as well as a further Sh6 billion from the World Bank.

Mr Yatani said that Treasury had also received a pledge of Sh7 billion from the Sports Fund as well as other individuals, organisations and State agencies.

HAND SANITISERS

On Tuesday, the Treasury boss received a Sh2 billion cheque, which was part of the money recovered in the war on corruption to fund the fight against coronavirus.

The cheque was handed over by a multiagency team consisting of Director of Public Prosecutions (DPP) Noordin Haji, Ethics and Anti-Corruption Commission Chief Executive Twalib Mbarak, and Directorate of Criminal Investigations (DCI) head George Kinoti.

Treasury’s move to include the use of “dirty money” to fight the virus signals the government’s intent to pull on all stops to stop Covid-19 on its tracks.

And the Haji, Kinoti and Mbarak team promised some more billions towards the fight once pending corruption cases are concluded.

At the same time, the government last month ordered for the release of impounded ethanol for use in the manufacture of hand sanitisers that will be distributed for free.

At 80 per cent alcohol content, the hand sanitisers, manufactured by the Kenya Pipeline Company, will be distributed to all the 47 counties in 20,000-litre batches per county per week, as well as a different batch targeting public places including markets and bus stations across the country.

The release of the impounded ethanol solves another unique problem in the counties: very few people have access to running water.

BASIC NEEDS

The World Health Organisation (WHO) recommends the use of soap and running water to wash hands but on lack of which the use of alcohol-based hand sanitisers can suffice.

Mr Yatani said that all the funds collected will go to the newly established 10-member Covid-19 Emergency Response Fund Board chaired by Kenya Breweries Managing Director Jane Karuku.

"Our plan is to use these funds as a second buffer. When we are done with measures from the national budget, then we will use these funds to cushion ourselves," he said.

According to PBO projections, under the proposed fiscal stimulus, the government should allocate Sh40 billion to stimulate the key sectors that involve the Big Four Agenda such as affordable housing, manufacturing and food security through concessional credit facilities, loan guarantees, and immediate agricultural input subsidies.

PBO further projects that another Sh70 billion is required for social transfers to vulnerable persons, laid off workers, and eligible self-employed persons in the informal sectors in the next three months.

It proposes that the initial target should be four million urban households with a transfer to support food and other necessities.

EXPAND CAPACITY

An additional Sh30 billion for direct and indirect support to most affected sectors and businesses in form of payroll support and concessional interim credit facilities.

The sectors include hotels, restaurants, and entertainment facilities, professional and support services, transport and storage, flower industry, and affected small and medium sized businesses in various sectors.

While it proposes that the government should ring-fence allocations to the health sector - including enhancing the Universal Health Care programme - it wants an additional Sh10 billion allocated to the Ministry of Health to expand the health sector’s capacity to respond to disasters - including employment of more staff, provision of facilities and support to local manufacturing firms to scale up medical and protective supplies.

Another Sh10 billion should be allocated to support this interim effort, the PBO said.

Mr Yatani said consultations are ongoing to ensure that the three arms of government respond to calls for reallocation of foreign and domestic travel funds in the Executive, Parliament and the Judiciary.

ECONOMY REELS

He said that the ministry is working to realign the budget to not only help the efforts in the health sector, but also cushion the most vulnerable, including the old, and those depending on daily wages, especially in the informal settlements in urban areas.

“I may not be able to give you the specifics on the budget for Covid-19 because it’s a moving target, but the figures are massive. Covid-19 touches every aspect of our economy, and we are not leaving anything to chance to try as much as possible to mitigate these effects," Mr Yatani said.

The PBO analysis reveals that the implementation of the measures announced by President Kenyatta will occasion revenue loss of about Sh122.3 billion in the final quarter of the 2019/20 financial year.

However, it notes that the population of citizens who are not in gainful employment would miss out on the tax reliefs announced by the president, especially the ones relating to the income tax, and warns that the effects of Covid-19 are likely to extend to 2020/21 and beyond, implying that the taxation measures may be a bit long term and not stop gap measures.

“A policy mix of balancing the likely revenue loss on account of these taxation measures with expenditure cuts would be ideal. The focus should be on expenditure rationalisation on some development projects which are unlikely to be implemented under the current environment as well as recurrent expenditure that is obviously hampered by reduced government activities,” the analysis says.

RENT

In addition to the five new taxation measures, the PBO proposes others such as allowing landlords not to charge rent for a specified period of time, and utilising the rent forfeited to offset for the residential rental income tax (RRIT).

This, office said, would cushion citizens - especially low income earners who will not benefit from the income tax relief due to the nature of their daily unpredictable wage earnings.

The PBO recommends that ministries, departments and agencies should absorb the full impact of revenue collection shortfalls amounting to Sh122 billion in three months by implementing expenditure cuts in all discretionary areas such as travel, training and entertainment including suspending non-critical development spending.

Tracking coronavirus