More borrowing expected as Treasury seeks to avoid tax increase

The National Treasury is expected to issue measures resulting in a domestic revenue increase estimated at Ksh.400billion over the next financial year to stay within bounds of the approved Ksh.3.02 trillion budget estimates.

An analysis of the approved budget by parliament’s budget and appropriations committee and the initial budget policy statement issued in February 2019 illustrates the closing walls on Rotich.

Revenue projections which largely fall short of expectations are expected to come in at Ksh.2trillion comprising of a majority Ksh.1.9trillion in ordinary revenues and Ksh.203.7 billion in ministerial appropriations.

The balance of Ksh. 1 trillion is expected to be footed partly by a combination of fiscal discipline measures and borrowing in a move largely aimed at cutting back on government spending and increasing taxes.

Net borrowing is expected to total Ksh.613.5 billion comprising of Ksh.289.2 billion in domestic borrowing and Ksh.324.3billion in net external financing bringing the share of raised revenues to Ksh.2.6trillion to leave a deficit of an approximate Ksh.400billion.

The play out in revenue mobilization efforts leaving Rotich short in reaching his ambitious Ksh.3.02 trillion budget.

The Cabinet Secretary will likely move to infuse more tax measures to realize his seemingly untenable budget but has the hard option of cutting back government spending in a factor largely pegged on cuts to development expenditure.

While a move to increase taxes is feasible, any revised contributions will have to have far-reaching coverage on the tax base going by the hefty revenue requirements.

Earnings from past hard-hitting tax measures under the 2018 Financial Act which include increased excise duty on mobile money transfers, presumptive taxes on small business and an eight percent value added tax on petroleum products when combined barely cross the Ksh.100 billion mark.

The muted earnings from the recent huge intervention in taxes reflecting on how tough going funding a Ksh.3.02trillion budget is.

From the total budget Ksh.2.1 billion is expected to cater for recurrent expenditure to include the allocation to counties, ministerial expenditure and government payment obligations represented by the Ksh.696.6 billion consolidated fund services docket.

Developmental expenditure is meanwhile estimated at Ksh.670.7billion across the 2019/20 fiscal year.

With the high stakes, the National Treasury will most likely resolve to a recalibration of projections on both revenue and government spending to close in on a sound financing plan sooner or later as has been the case in past financial years.

The alternative, however, would lie in the hiking of borrowing impacting on the already high net public debt presently sat at Ksh.5.42 trillion.