Tough choices Yatani faces as he presents 2022 budget
Treasury Cabinet Secretary Ukur Yatani must deal with ballooning debt and the escalating cost of living as he tries to balance this year’s National Budget, experts have said.
They warn that having borrowed close to Sh8.5 trillion so far, the government is in an awkward position to balance its books of account.
Samuel Nyandemo, a senior economics lecturer at the University of Nairobi (UON) said the national budget will be read amid shrinking revenues and drought, which will lead to food insecurity. Prices are also expected to persistently go up, he said.
“At the end of it all, he (Yatani) will resort to a hidden tax. He will tax the sin industry, soft drinks and also hit hard on Safaricom and other channels of communication,” he said, adding that it will be difficult to balance it, on the back of the Covid-19 pandemic.
Yatani will read the financial year 2022/23 budget statement in parliament this afternoon.
As of September 2021, the public debt stock amounted to Sh7.99 trillion, having risen by 19 per cent from June 2020. External debt takes a big chunk at 52 per cent, against domestic debt stock of 48 per cent.
It is expected to range between Sh8.6 trillion and Sh8.8 trillion by June 2022, and cross the Sh10 trillion mark by the end of 2024, the Parliamentary Budget Office (PBO) said in its 2022 medium term debt management strategy report. According to the report without the amendment of the debt ceiling and adherence to the fiscal consolidation path, fiscal policy will be implemented under increasingly constrained fiscal environment and the desired outcomes may not be achieved.
Fiscal deficits
“Against a ceiling of Sh9 trillion, this illustrates insufficiency of fiscal space to finance the fiscal deficits for financial year 2022/23 (Sh846 billion) and the rest of the medium term,” PBO notes. Ken Gichinga, the Chief Economist at Mentoria Economics said excessive debt is exposing the shilling to instability, since half of the money borrowed is US dollar denominated.
“You can imagine that extra money Kenya has to pay is not budgeted. This is enough reason to consider our debt strategy moving forward,” he said.
According to PBO the fiscal deficit, which facilitates the accrual of public debt amounts to Sh846 billion in financial year 2022/23, and is estimated to decline to Sh675 billion by the end of the medium term.
While initially, the fiscal deficit was prompted by infrastructure related expenditures, the increase in debt servicing expenditures alongside critical expenditures including implementation of the economic recovery strategy and general elections are expected to play a greater role in the stickiness of the fiscal deficit over the medium term and determine the pace of debt stock growth.
Since 2013/2014 financial year, Kenya Institute of Public Policy Research and Analysis says the annual net borrowing has increased by Sh685.7 billion.
