The Ksh.92B hole in Kenya’s budget that Treasury will not tell you about

Hidden away in the proposed first supplementary to the 2019/20 approved budget estimates is a Ksh.92.1 billion financing hole whose funding is yet to be collaborated.

The new deficit adds to an already existing Ksh.634.9 billion financing gap to pile the pressure on the National Treasury which already finds itself on the back foot in meeting the initial gap to funding.

Despite having preached of forthcoming budget cuts, Ukur Yatani’s first mini budget pushed up government spending by 2.8 percent to Ksh.3.1 trillion from a flat Ksh.3 trillion having incorporated an addition of Ksh.85.8 billion in new development estimates while only installing cuts in recurrent spend totaling to a mere Ksh.5.7 billion or an equivalent 0.5 percent.

Fiscal slippage

From a net spend of Ksh.3.1 trillion, the National Treasury retains expected revenue estimates at Ksh.2.1 trillion in spite of adjustment to expected mobilization efforts leaving behind a new stretched gap of Ksh.753.2 billion,

This after the exemption of domestic/foreign debt redemption’s, the inclusion of grants estimated at Ksh.38.9 billion and the accommodation of a Ksh.65.7 billion shortfall in total cumulative revenues as of October 31.

Nevertheless, the old gap of Ksh.634.9 billion is accommodated for in the original approved estimates through a combined Ksh.331.3 billion and Ksh.300.3 billion worth of net foreign financing and domestic borrowing respectively.

Of the remnant Ksh.118.3 billion shillings in unmatched financing, Treasury only accounts for Ksh.26.2 billion in new financing from increased donor participation to leave behind the Ksh.92.1 billion gaping hole.

Raised eyebrows

The hole in financing has not however gone all unnoticed in financial circles with analysts warning of increased borrowing and the eventuality of an increased debt distress profile for the country on the back of the raising of the borrowing ceiling to Ksh.9 trillion earlier this month.

Analysts at Genghis Capital for instance expect the plugging of this hole to push the fiscal deficit to 6.7 percent at the end of the financial year in June 2020.

A 6.7 percent budget deficit would however been an improvement from the 7.7 percent increased slippage last year but would still be costly to fiscal management.

“The Supplementary Budget I Estimate would not have come at a less ideal time. The IMF Article IV talks is scheduled late this month and a deteriorating fiscal will dent progress of hammering a new Stand-By Arrangement,” researchers at Genghis Capital reckons in a note published on November 19.

Seemingly the Budget and Appropriations Committee (BAC) has gotten wind of a wider deficit than that on Treasury’s record to call for honesty on the planning ministry’s part.

“If you were serious about a new beginning you would know supplementary budgets are only for unseen circumstances. I don’t see that in this revisions. We need to start off with a culture of transparency. Let’s not hideaway some cards under the table,” Gatundu South Member of Parliament prompted Treasury in a BAC session held earlier this week.

Ukur Yatani has however continued to defend his fiscal consolidation plan on the targeting of more cuts to recurrent expenditure and concessional funding even as the walls close in on his options.

“I understand and take full responsibility for the budget. The fact that the debt ceiling was raised isn’t a guarantee of us borrowing”, CS Yatani told the BAC.

Yatani is betting on tapping of concessional funding from multilateral and bilateral institutions to write off or swap existing expensive debt even as the measure remains shrouded in doubt with the pair of partners only known for largely offering program loans.

While the tipped additional concession funds remains a mystery, Peter Chacha, the Chief Economist at the World Bank Kenya reckons the country can deploy its experience in the international debt market to tap credit at cheaper rates

“Kenya has had a huge access to the international market at very good rates and they are instruments that can help to reduce this further. In a way it’s about exploiting all the options you have to ensure you debt contracted at very low costs but also for longer maturity,” Mr. Chacha said in an October 30 interview.

The enactment of adjustments to the 2019/20 estimates however remains the prerogative of Parliament with members expected to vote on the appropriations bill on December 5.

Economist Ramogi Odhiambo however warns of complacency on members’ part given their historical record of falling for Treasury’s requests,

“MPs have proven their lack of sincerity to Kenyans by making a lot of noise on debt on the outside while granting the National Treasury the leeway to adjust spending,” he said.

Privy to the widened funding gap, the BAC is expected to hold another sitting with the National Treasury on Monday in a quest to get clarity on the financing of the 2019/20 budget ahead of the committee’s presentation of a final report to the House on its consideration for the revised appropriations on November 26.

“We are yet to be convinced that the fiscal deficit you are showing in the book is what is actually going to be there. The realism of revenues is also still in question,” BAC Chairman Kimani Ichungwa tasked the Treasury in Tuesday’s session.