Job cuts, firm losses force Treasury to up borrowing

Wednesday March 18 2020
By OTIATO GUGUYU
By DAVID MWERE

The Treasury has opted to borrow more after an August audit revealed that the Kenya Revenue Authority (KRA) will miss its targets in a business environment plagued by job cuts and reduced corporate profits.

The Budget outlook paper tabled in Parliament yesterday shows that the National Treasury has revised its borrowing target to Sh640 billion for the year ending June next year, up from the Sh607 billion it had unveiled in the June budget statement.

Treasury will now target a deficit of 6.2 percent of gross domestic product (GDP) for the current fiscal year, which runs from July to June, compared with a forecast of 5.6 percent in June. It said the revision to its forecasts was driven by poor revenue collection and expenditure in 2018/19.

“We are faced by ... emerging expenditure pressures, the underperformance of revenue and rising public debt and it is therefore, inevitable to tighten public spending,” the Treasury said. “In light of these challenges, the revenue projections for the financial year 2019/20 have been revised taking into account lower projection based on account of the Sh123 billion shortfall in financial year 2018/19 and revenue performance by end of August 2019”.

KRA was expected to collect Sh1.877 trillion in tax from lines like company profits and workers’ salaries, but the target has been lowered to Sh1.852 trillion barely four months into the new financial year that started on July 1. The cuts point to the extension of reduced sales and profits in corporate Kenya that have persisted since 2017 when the country went through a bruising General Election and two presidential elections after the first one was annulled by the Supreme Court.

Top firms have in recent months put on hold the hiring of new staff in an economy that has also witnessed a string of job losses affecting nearly all sectors.

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Reduced profitability in corporate Kenya, which is underlined by a record number of firms listed on the Nairobi bourse issuing profit warnings, has also hurt income tax collections.

The fiscal deficit for 2019/20 will be financed by net external financing of Sh331 billion, domestic borrowing of Sh305.7 billion and other net domestic receipts of Sh3.2 billion, the document said.

Economists and political analysts have criticised President Uhuru Kenyatta’s government for increasing borrowing since coming to power in 2013.

Total public debt has jumped to 55 percent of GDP from 42 percent before he took office. The government says the higher borrowing funds infrastructure projects. The Treasury is also trying to cut spending amid the struggle to raise revenue. It announced budget cuts on what it termed unnecessary expenditure, such as trips abroad by officials and advertising by government departments, to rein in a gaping fiscal deficit.

The cuts will accompany a freeze in both hiring and pay increases as well restrictions on new development projects, which will now require Treasury approval. However, the Budget outlook paper shows that Budget expenditure for the year to June will stand at Sh2.84 trillion, from the June forecast of Sh2.8 trillion, suggesting the cuts are unlikely to shrink State spending.