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Address concerns over budget deficit

Thursday June 9 2016

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The thrust of the Budget presented in Parliament on Wednesday was infrastructure development, agriculture, youth empowerment, education, health, and social protection. It was a budget done with the 2017 election in mind, pronouncing policies that favour the poor and raiding the pockets of the rich.

Largely, it was a continuation of the initiatives under the Jubilee administration and the determination to conclude them, possibly to present a credible report card at the end of its term next year.

Overall, the ambitious budget of Sh2.2 trillion will be far above the anticipated revenue collection of just under Sh1.4 trillion. The import is that the government will have to borrow heavily, both externally and internally, to plug the budget deficit. Already, concerns have been expressed about the country’s appetite for borrowing, which is becoming untenable as it weighs down growth.

At the heart of the Budget was economic transformation through infrastructure development and agricultural growth. Treasury Cabinet Secretary Henry Rotich made several references to the desire to create a conducive business environment, which relates to proper infrastructure, tax reduction, and friendly legislation and policies.

For the past decade, the country has embarked on massive infrastructure development in the form of roads, railway, airports, and energy projects largely assisted by foreign funders such as China with the single objective of easing the movement of people and providing critical inputs for production.



Some of the policies enunciated in the Budget were aimed at protecting local production such as tax waivers on garments made from materials sourced from export processing zones, a new levy on imported iron and steel, as well as higher duty on imported aluminium. The challenge is the full impact of some of these measures, given that export processing zones, for example, despite various government interventions in the past, have not made a major contribution to the nation’s economic growth.

Equally, there was focus on social services, particularly education and health, with the latter continuing to chalk up a huge percentage of the Budget. The counties, which have become the engine of development, were allocated some Sh280 billion, slightly below the Sh288 billion the previous year. 

The Independent Electoral and Boundaries Commission was allocated Sh19.7 billion to enable it to start preparations for the elections and avoid the pitfalls of 2013, when a last-minute rush to procure equipment occasioned serious mistakes during the polls.

However, much of the gains presented in the Budget are bound to be wiped out by the significant increase in the fuel levy, from Sh12 to Sh18 a litre. This automatically raises the cost of fuel and sets in motion a chain reaction.

Transporters will increase their costs and that translates into the rise of commodity prices and the consequent impact on individuals’ pockets.

For example, even if fees to national parks have been waived for tourists, if fuel prices go up, there is no net gain for the guests because they have to pay higher transport fees.

In the final analysis, the challenge with the Budget will be bridging the huge deficit between revenues and consumption in a manner that guarantees economic stability.