Treasury overshoots revenue targets to fund Ksh.2.7 trillion budget

The National Treasury has once again overestimated the domestic revenue targets for the financial year commencing July 1, 2020.

According to the Budget and Appropriations Committee (BAC) the exchequer has continued to maintain over-ambitious targets in the face of the global health emergency which has shaved off the majority of tax heads.

“Due to the effects of COVID-19, it is projected that revenue will underperform and may amount to Ksh.1.396 trillion only based on month on month performance of all the tax heads. If the pandemic persists, the situation is likely to be aggravated therefore even the revenue projection of Ksh.1.62 trillion for the year 2020/21 maybe overestimated,” notes the Committee in a report tabled Thursday.

The overshooting of revenue targets will mean a widened fiscal deficit in the year to June 2021 with accompanying higher borrowing to plug the hole.

According to estimates by the Parliament Budget Office (PBO), tax revenue as a percentage of GDP is expected to come down from 7.2 percent in the year ending June 30 to between 5.8 and six percent in the next fiscal cycle.

Lower than expected revenue targets will culminate in routine revisions to tax targets and supplementary budgets to adjust spending to observed shortfalls in collections.

Total revenues in the current financial year were for instance adjusted from Ksh.2.1 trillion in the original budget to Ksh.2 trillion and later to ksh.1.9 trillion even as total expenditures and net lending has remained stuck at Ksh.2.8 trillion.

A number of Ministries and State Departments (MDAs) have already expressed the inability to meet Treasury thresholds in the collected of appropriations in aid (A-iA) as the pandemic wipes out earnings.

The State Department of Environment and Natural Resources for instance says its Ksh.4.62 billion ceiling given by Treasury is unrealistic as it is only able to collect a paltry Ksh.920 million or an equivalent 20 percent of the target.

Total revenue collections to June are estimated at Ksh.1.643 trillion with the Treasury having already collected in excess of Ksh.1.346 trillion by the end of April.

A lower than scheduled revenue basket in the year will exert more pressure on the National Treasury which is expected to deploy 55 percent of revenues towards debt and pension repayments contained in the Consolidated Fund Services (CFS).

The 2020/21 budget is estimated at Ksh.2.733 trillion (Total expenditure and net lending) with recurrent expenditures making up Ksh.1.8 trillion while development spending accounts for the balance of Ksh.584.9 billion.

Meanwhile, Ksh.904.7 billion has been set aside for public debt servicing.

The financing of the remaining deficit is already skewed and contrary to the plan to reduce domestic borrowing with local financing from borrowing estimated at Ksh.473.6 billion in comparison to Ksh.349.7 billion in external financing.