Treasury to ditch wide fiscal deficits, Treasury CS Yatani says

Kenya will no longer set wide budget deficits and will focus on boosting inadequate revenue collection and minimal borrowing, the finance minister said on Wednesday.

President Uhuru Kenyatta’s government has been criticised for borrowing heavily in recent years. It was forced to raise its borrowing ceiling last year after it breached the set level.

Ukur Yatani, Cabinet Secretary for National Treasury, said the room for budget deficits, which have been above six percent of GDP in recent years, had long closed.

“The era that we kept on spending outside the budget when we don’t have the ability to finance our own activities is long gone,” he told a meeting to prepare the government’s 2020/21 budget.

“We are going to cut our coat according to our cloth and size. We will give what we can afford.”

The fiscal deficits, which peaked at 9.1 percent of GDP in 2016/17 financial year, were driven by higher spending on infrastructure projects like a new railway financed by debt with China.

The fiscal gaps were accompanied by consistent failure by the Kenya Revenue Authority (KRA) to meet the government’s lofty revenue collection targets every financial year.

“When the KRA and other agencies charged with the responsibility of collecting taxes deliver, it is when we are going to spend, because the other option that we have, we have either exhausted or we are on the edge,” Mr Yatani said.

Economic growth is estimated to have slowed to 5.6 percent last year, from 6.3 percent a year earlier, and well below the government’s initial estimate of about six percent, the finance ministry said.

It attributed the slowdown to lower-than-expected growth in the agriculture sector, which accounts for close to a third of annual output.

Growth is expected to bounce to 6.1 percent this year, the Treasury said, before rising to seven percent per annum in the medium term, driven by a focus on sectors with high potential like manufacturing.

Mr Yatani acknowledged that people were disenchanted with the growth numbers. Farmers have complained of low prices for their commodities and small and medium firms have suffered from delays in the payment of bills by the government.

He warned local authorities, state firms and government departments and agencies against delaying supplier payments, which have been blamed for a rise in loan defaults and job cuts.

“We are going to institute harsher administrative interventions to make sure that what belongs to the people is given to the people on time,” he said.