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Treasury cuts economic growth forecast to 0.6pc

By Lewis Njoka
Thursday, November 26th, 2020
Treasury Cabinet Secretary Ukur Yatani at a past press briefing. Photo/PD/File
In summary

Treasury projects the economy to grow at 0.6 per cent this year and not 2.6 per cent as announced in September.

National Treasury Cabinet Secretary Ukur Yatani said he revised the projection downwards after more indicators pointed towards slowed growth going forward. 

“The growth outlook for 2020 has been revised downwards following receipt of more recent indicators, the contraction of economy recorded for the second quarter of 2020 and the global projections released in October 2020,” he said.

Yatani said the economy contracted by 5.7 per cent in the second quarter of 2020 from a growth of 4.9 per cent in the first quarter of 2020. The economic growth is, however, expected to rebound to 6.4 per cent in 2021.

He said the global coronavirus pandemic and the resultant containment measures disrupted normal lives and livelihoods as well as businesses and economic activities.

“The capacity of the economy to generate additional resources to finance the budget has been affected from reduced economic activities,” he said.

Revenue shortfalls

Kenya, according to Yatani who spoke while opening budget hearings in Nairobi yesterday, continues to experience revenue shortfalls due to suppressed economic activities as a result of Covid-19 pandemic and tax relief measures implemented in April.

Tax reliefs extended earlier in the year to cushion Kenyans from the effects of scourge have so far has cost the country Sh172 billion in revenues. 

Total cumulative revenues as at the end of October (including Appropriations-in-Aid) was Sh505.3 billion, 4.5 per cent of gross domestic product (GDP), against a target of Sh 570.7 billion translating to a Sh65.4 billion shortfall.

Similarly, the expenditure side registered a Sh27.8 billion shortfall with the government spending Sh733.4 billion as at end of October this year against a target of Sh761.2 billion.

The overall fiscal balance as at the end of October 31 amounted to a deficit of Sh223.7 billion (two per cent of GDP) against a targeted deficit of Sh172.8 billion (1.5 per cent of GDP).

This is higher than the Sh133.8 billion overall deficit reported same period 2019. 

To cater for the expected reduction in revenues, the government plans to cut down on expenditure by reducing foreign trips, trainings and postponing some projects, according to Yatani.

 “We are likely to make less revenue than projected. What options do we have? We either borrow or cut on expenditure. We intend to cut on expenditure so that we reduce on borrowing,” said he said.

The CS refuted claims that the country was in debt distress adding that the country was not in the process of asking for debt restructuring either.

“I want to confirm that our debt situation is highly sustainable, we have never defaulted.

We are firm, our fiscal framework is healthy but every month we are realising less revenue,” said Yatani.

Speaking at the same forum, National Assembly Budget and Appropriations Committee chairman, Kanini Kega called for fiscal consolidation and caution in debt acquisition. 

“We must always be guided by one cardinal rule that the burdens and benefits of the use of resources and public debt should be shared equitably between us and the future generations. We cannot afford to overburden the future generations,” Kega said.

Final decision

Kenya is yet to make its final decision on whether to join the G20 Debt Suspension Service Initiative (DSSI) saying the initial conditions set for a country to join were not tenable, according toYatani. 

Under the DSSI initiative, bilateral creditors will, upon request, suspend debt service payments for poor counties for a limited period to enable them deal with the effects of Covid-19 pandemic. 

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