MPs rubbish Treasury’s 2020 growth projection
John Otini
The National Assembly’s Budget and Appropriations Committee (BAC) has quashed Treasury’s 6.2 per cent economic growth projections for the year, citing monumental budgetary constraints.
BAC said due to sticky issues like a huge big stock of pending bills, revenue shortfalls, several unfinished projects that needed Sh1 trillion to be completed and the need to scale up implementation of the Big Four agenda projects, the growth may not be much.
In a budget statement, the committee says that Treasury falls short by claiming that a 6.2 per cent growth will be supported by a stable microeconomic environment, sustained business and consumer confidence and growth and resilience in tourism.
Debt management
The Committee tabled its report on the 2020 Budget Policy Statement (BPS) and Medium-Term Debt Management Strategy (MTDS).
The approval of the report will pave way for Division of Revenue Bill 2020 which aims to allocate, in the 2020/21financial year, ordinary revenue (Sh1.86 trillion) between the national government (Sh1.53 trillion), equalisation fund (Sh6.5 billion) and county equitable share (Sh316.5 billion).
“Although the national government has identified exports as a key driver of economic growth, exports as share of gross domestic product has been declining over the past decade,” read the BPS.
Inflation is already on the rise and the Kenya shilling has been spooked by foreign selloffs at the Nairobi Securities Exchange.
Tourism is expected to drop as Coronavirus fright shuts down travel in Europe which is the key tourist market for Kenya.
Foreign exchange reserves are primarily being driven by remittances instead of exports, which the committee said was risky due to the volatile nature of remittances.
The MPs sought to have the government focus on attracting foreign direct investments as well as diversifying and growing Kenya’s export base.
The BPS also expressed concern that easing of monetary policy tended to result in financing of consumer durables, insurance and finance instead of manufacturing and agriculture.
Concessionary borrowing
MPs also said it was not clear if the government would get access to external concessionary borrowing to reduce domestic dependence especially commercial borrowing. The public debt has already hit Sh6.01 trillion.
The other reason is that the government may not be able to stick to fiscal consolidation given that the last supplementary budget introduced Sh90 billion for Agenda Four projects.
BAC also faulted the scanty details of the tax policies to anchor revenue growth, in light of negative revenue outturn in recent fiscal years.
Notably, BAC singled out the generous tax exemptions which the Parliamentary Budget Office (PBO) estimates leads to a revenue loss of Sh136.2 billion yearly.
“The aggressive revenue targets feed on negative outturn. Seven-month actual data for FY2019/20 indicate revenue fell short of its target (on a cumulative basis) by Sh103.8 billion,” Genghis said in a note to clients.
“Yet, the stress test highlighted in the 2020 BPS indicate that one per cent reduction in GDP will only lead to an Sh18 billion revenue shortfall. We hold the view that revenue need to be recalibrated to a realistic target,” said Genghis.
