Treasury faces uphill task to raise Ksh.759 billion in three months

The National Treasury is facing an uphill task to raise Ksh.759.1 billion in three months to the end of the fiscal year in June under hardships brought forth by the Covid-19 pandemic.

According to the most recent data from the Treasury to March 31, total revenues collected in nine months inclusive of ministerial appropriation in aid (A-i-A) stood at Ksh.1.325 trillion against a target of Ksh.1.537 trillion to show a gap of Ksh.211.9 billion.

Meanwhile, ordinary revenues which are representative of government income from taxes stood at Ksh.1.216 trillion against a target of Ksh.1.348 trillion or an equivalent Ksh.132.3 billion shortfall.

According to data from the 2020 Budget Policy Statement, total revenue to June is estimated at Ksh.2.084 trillion to represent a split of Ksh.1.843 trillion and Ksh.240.3 billion in ordinary revenues and ministerial aid respectively or an equivalent 20.1 per cent of GDP.

Treasury Cabinet Secretary Ukur Yatani in his presentation of the second supplementary estimates to Parliament this week expressed his worries over potential shortfall in revenues owing to a slowdown in economic activity.

“The implementation of the 2019/20 budget continues to face various challenges. These include the Covid-19 pandemic which has slowed down the economic performance, underperformance of projected revenues and the increased demand for additional priority expenditures,” he said.

On Tuesday, the exchequer ministry proposed second round adjustments to the 2019/20 budget to include a Ksh.74.4 billion slash on spending by the national government in addition to a Ksh.24.8 billion haircut to pension obligations and interest payments on debt.

Economist Tony Watima however argues the adjustments fail to reflect on the reality of projected revenues warning of an even wider fiscal deficit at the end of the financial year.

“It would be deceitful to suggest revenue projections will be maintained at levels preceding the Covid-19 outbreak. We would have loved to see the supplementary estimates aligned to expected shortfall in revenues,” he said.

Already, the National Treasury is expected to take a further hit in revenues from last month’s Presidential tax-relief announcement with the Parliament Budget Office (PBO) projecting a revenue loss of Ksh.122.3 billion or an equivalent 1.2 per cent of GDP.

Even so experts argue the Treasury is set to offset the losses from further amendments represented in the 2020, Tax Laws (Amendment) Bill which is set for debating next week.

“Our interpretation of the Tax Laws (Amendment) Bill 2020 in its current form reveals that the National Treasury is seeking to offset the tax losses with other taxation measures. As this particular Bill is expected to be debated next Wednesday, we expect the National Assembly’s Finance and Planning Committee to raise far-reaching amendments which could derail revenue mobilization and ultimately, the realism of FY2019/20 Supplementary Budget II estimates,” noted researchers at Genghis Capital.

The National Treasury is further grappling with deficit financing from debt sources with the projected recession by both the World Bank and the International Monetary Fund (IMF) triggering an exodus of liquidity from emerging and developing economies.

According to the latest available statements on actual revenues and net exchequer issues as at February 28, the National Treasury has ear marked Ksh.200 billion from external commercial loans having yet to tap onto the commercial loans across the last eight months.

On average revenue collections in the past three quarters has averaged Ksh.147.2 billion a month pointing to a minimum Ksh.317.5 billion shortfall to full year collections.

Total Revenues across the 2018/19 fiscal year stood at Ksh.1.671 trillion against a target of Ksh.1.794 trillion to represent a Ksh.123.2 billion shortfall.