What Sh3.2trn Budget means for economy

The government is betting that its spending running into a total of Sh3.2 trillion in the fiscal year starting July 1 will be enough to keep the economy from falling into a recession by countering the contractionary impact of the Covid-19 pandemic.

The Budget is 20.8 percent larger compared to the Sh2.6 trillion estimated for the current year ending this month and features a heavy outlay in areas such as infrastructure, water and sanitation as well as energy projects that governments typically focus on to create jobs and cash flow to business, and ultimately growth.

The National Treasury projects that the GDP will grow at a slower 2.5 percent in the upcoming financial year and thereafter rebound to 5.8 percent in the subsequent year.

“We expect the economy to grow by between 2.5 percent and three percent,” Treasury Secretary Ukur Yatani said.

“I firmly believe that the measures spelt out in this budget will

create more jobs and transform the lives of Kenyans,” he said, adding that Kenya will fare relatively better compared to other countries that are staring at zero growth or recession.

The Treasury has opted to keep its budget free of taxes on basic items to cushion households hit by the Coronavirus disease, which has delivered job cuts and unpaid leave.

However, it has eliminated tax reliefs attached to goods consumed by the rich like hiring of helicopters and purchase of aeroplanes as well importation of cars and tractors.

The Treasury hopes the end of the tax relief will add Sh38.9 billion to Kenya Revenue Authority’s collection.

This together with fresh borrowings and aggressive pursuit of tax cheats will help fund the additional spending of Sh558 billion. The government will increase spending on infrastructure by Sh64.8 billion to Sh189.5 billion, making it one of the biggest expenditure items.

Spending on energy projects will rise Sh52 billion to Sh72.4 billion, water and sanitation to Sh77.7 billion from Sh34.8 billion and health to Sh111.7 billion, an increase of Sh33.3 billion.

Increased spending on development projects such as roads, water, power plants, real estate and electricity transmission lines stimulates economic activities, helping create job opportunities and grow government revenue, largely taxes.

Cement makers, steel manufacturers, contractors and the thousands of workers employed in the infrastructure pipeline benefit from public spending and usually feel the pinch of a drop in public expenditure on development.

Part of the cash will be used to repair roads that were recently damaged by floods in various parts of the country. The second phase of the Standard Gauge Railway line will receive Sh18.1 billion.

The positive growth forecast comes despite the major economic pain inflicted by measures taken to curb spread of Coronavirus. These include travel restrictions, closure of schools and bars and a national night curfew. These actions have resulted in hundreds of thousands of Kenyans losing their jobs since the first case of Coronavirus was confirmed on March 12, with millions others suffering pay cuts.

Businesses on the other hand have seen their revenues fall drastically, with the government also taking a hit from reduced tax collections on consumption, individual and corporate taxes.

Mr Yatani also detailed billions of shillings in expenditure on other short-term stimulus programmes including Sh10 billion for the Kazi Mtaani initiative, which will see 200,000 young people hired to work in communities, including cleaning up the environment.

Some 5,000 healthcare workers will be hired for a year at a cost of Sh1.2 billion to aid in the fight against the Covid-19 pandemic.

The Budget and Appropriations Committee said in its report that the stimulus spending is required at this time, but noted that it may not be enough to maintain economic growth.

The House committee cited reduced revenue collection, a higher deficit and uncertainty over the longevity of the pandemic as the biggest threat to the economy.

“Mr Speaker, though quite small relative to the required economic stimulus programme, the proposed stimulus programme is a good start,” the committee said ahead of Mr Yatani’s speech on Thursday.