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Will Yatani’s budget dig us out of economic hole?

Thursday, June 18th, 2020 00:00 | By
Treasury Cabinet secretary Ukur Yatani shortly before leaving for the 2020 Budget reading in Parliament. Photo/PD/John Ochieng

Obviously, Kenya’s economic outlook for the Financial Year 2020/21 is not a rosy one.

The country has been reeling from the impact of the coronavirus pandemic, which has led to disruption of supply chains and cessation of many economic activities.

The budget presented by Treasury CS Ukur Yatani last week is one of tough choices, as the proposed Sh58 billion  economic stimulus package will come against a high public debt, which currently stands at Sh5.3 trillion.

In the budget, Yatani set aside Sh904 billion for debt repayment, out of the Sh2.73 trillion budget. 

Kenya’s public finance challenges were aptly covered in the budget’s theme, “Stimulating the Economy to Safeguard Livelihoods, Jobs, Businesses and Industrial Recovery.” 

But even before Covid-19, the economy was struggling from a combination of a locust invasion and flooding, perils which seriously interfered with some of its economic pillars.  

The well laid out economic plan in the 2019-2020 financial year was thwarted on April 23 when Kenya went into partial lockdown to stem the rising cases of coronavirus infections.

Consequently, over one million Kenyans have lost their jobs mainly in the worst-hit sectors - tourism, transport, horticulture, communication and education. 

The ubiquitous micro, small and medium enterprises (MSMEs) sector has not been spared by the impact of the pandemic.

The 2014 National Economic Survey by the Central Bank of Kenya indicated that MSMEs constituted 98 per cent of all business in Kenya, created 30 per cent of jobs annually, and contributed three per cent of the GDP.

On April 19, for instance, the government banned the highly lucrative importation of second hand clothes, known as mitumba, due to Covid-19 transmission concerns.

According to the Kenya National Bureau of Statistics, Kenya imports an estimated 100,000 tonnes of mitumba annually, providing the government with millions of dollars in customs duties, and creating tens of thousands of jobs.

In a meeting with the National Development Implementation and Communication Cabinet Committee, the Kenya Private Sector Alliance recommended a phased opening of the economy, starting with the reduction of the curfew hours for non-essential services and sectors in order to allow for more economic activity and workforce productivity, particularly in the MSME sector.

The Sh58 billion economic stimulus package will focus on  infrastructure, improving education outcomes, enhancing business liquidity, improving health outcomes, agriculture and food security, improving environment, water and sanitation facilities, tourism promotion and manufacturing. 

In tackling its emerging revenue shortfalls from traditional sources, the government proposed some tax measures that might be a double edged sword.

For instance, the 1.15 per cent tax on gross sales of online businesses will reap from the growing number of online business transactions. 

If Kenya’s post Covid-19 fiscal and economic recovery strategy is successful, it is expected to bring the economy back on track with a growth of 5.8 per cent in 2021, increasing up to 6.5 per cent by 2024. 

This will be enabled through the allocation of Sh128.3 billion  to the drivers and enablers of the economic flagship, the Big Four agenda, which had paused temporarily in place of survival measures.

The government had reallocated significant funds of the sectors in this strategy – including health, manufacturing, affordable housing and food and security – towards funding the coronavirus emergency response.  

Ultimately, Kenyans are resilient and have often bounced back from the edge of political and economic crises.

Even this time, therefore, they are waiting to get back to business as usual, as the government gradually lifts containment measures. —The writer is a communication expert and public policy analyst  —[email protected]

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