Treasury’s financing headache for Sh2.6tr budget

The government will have a tough balancing act as it announces financing plans for the Sh2.6 trillion 2017/2018 budget.

This as National Treasury plans to increase spending without necessarily introducing a raft of taxes that could further burden both companies and individuals.

In the financing plan enumerated in the Budget Policy Statement, the Kenya Revenue Authority (KRA) will be out to collect Sh1.7 trillion, which is Sh400 billion more than what its expected to collect this financial year.

Treasury mandarins are working with the assumption that projected economic growth will lead to increased revenue collection.

KRA will also be required to expand the tax band and improve efficiency to get additional revenues.

This leaves treasury with Sh900 billion hole in the budget, as Treasury Cabinet Secretary Henry Rotich prepares to present his financing plans on Thursday afternoon.

The tabling of the 2017/18 budget comes at a time most Kenyans are concerned about the high cost of living and the ever expanding debt.

Treasury has indicated that it plans to cut down on external borrowing.

“On the external financing front, the Government will minimize the degree of foreign exchange rate risk exposure associated with the external debt portfolio by adopting a deliberate approach in diversifying currency structure so as to hedge against exchange rate risks especially to new loan commitments,” Treasury said in the budget policy statement.

Kenya’s debt currently stands at Sh3.8 trillion close to 50 percent of the country’s gross domestic product.

Cytonn Investment Managing Partner Edwin Dande said even as the government holds that the debt is being channeled towards development, there was need to re look the debt strategy.

“The acceptable number for an emerging economy is 50 percent so we are already at what we call the ceiling. But the trend is worrying and needs to be addressed,” Mr Dande said.

Central Bank of Kenya deputy governor Sheila M’Mbijjewe however said the government needs to take some risk to ensure it creates a sustainable economy given the growing younger generation.

“60 percent of your population is below 30 odd years and so if you don’t invest now and create opportunities what’s going to happen? You have to take some risks if you want to move forward,” she said.