Kenya’s 2017-18 budget worsening in fiscal deficit – Analysts

By David Indeje / September 12, 2017




Kenya’s budget deficit for the fiscal year 2017/2018 is likely to hit 8 percent of gross domestic product (GDP) from the initial National Treasury estimate of 6.30 percent according to financial analysts.

Genghis Capital Ltd in their ‘MacroEconomic Note: Impact of Supreme Court Ruling’,  they project ‘a worsening in fiscal deficit’.

“2017 growth is expected to be dismal owing to the lacklustre economic demand pressure. This has been reflected by the easing in Purchasing Managers Index (PMI) which has averaged 48.53 in the first eight months of 2017 against 53.91 in a similar period last year due to output slowdown,” part of the note reads.

The analysts further are of the view that with a slowed consumption they estimate an overall effect to knock 50bps off our initial growth forecast and thus revise our 2017 GDP growth rate to between 4.25 percent – 4.75 percent.

“The expected GDP slowdown will stifle revenue collection target (in our view, ambitious at KES 1.55Tn).”

In 1Q17, growth slowed to 4.7 percent  year on year, as the agricultural sector contracted 1.1 percent due to drought conditions.

In the current fiscal year, the budget deficit stands at KSh 524.6 billion (6 percent) of GDP. It is expected that the deficit will be financed through external borrowing of up to KSh 256 billion, and domestic borrowing worth KSh 268.6 billion.

Cytonn Investments in their weekly markets’ brief note that  the government is behind its domestic borrowing target for the current fiscal year, having borrowed Kshs 18.4 bn, against a target of Kshs 61.1 bn (assuming a pro-rated borrowing target throughout the financial year of Kshs 317.7 bn budgeted for the full financial year), the deficit has been covered by an overdraft from the Central bank now currently at Kshs 21.2 bn.

However, Cytonn is optimistic that the government is expected to meet its domestic borrowing target for the fiscal year, as banks and institutions channel funds more actively towards government securities following the capping of interest rates.


The 2016/2017 Fiscal Year that ended in June 2017, the government’s deficit widened to 8.3 percent of GDP, above its revised target of 6.9 percent due to an increase in execution of capital expenditure to fund ongoing infrastructure projects and election-related current expenditure.

In July, Fitch Ratings estimated the fiscal deficit to narrow to 6.4 percent of GDP in FY18, as expenditure falls closer to average historical levels and improvements to revenue administration and collection begin to show results.

However, in August Fitch said in terms of the Kenyan economy, “Failure to consolidate budget deficit and stabilise government debt/GDP would be negative for Kenya’s credit profile, while effective implementation of a fiscal consolidation plan and stabilisation of government debt/GDP could lead to a positive rating action.” “Risks to our forecast include slower-than-expected growth and lower revenue collection.”


Genghis notes that sentiment in the equities market was mostly bullish in the year to election date, with the YTD (on 7th August) performance of NSE All Share Index up 19.1 percent.

“In the penultimate week to the election, the index eased 1.6 percent before advancing in the five sessions post-election by 6.3 percent. The Supreme Court ruling came as a surprise to the markets with KES 129.6Bn in market capitalization diluted in the two consequent sessions. In that same period, foreign investors accelerated their selling with net selling position of KES 688.5Mn (an abnormally high exit),” they note.

Read: Kenya private sector experienced worst deterioration in August

“The biggest hurdle we foresee in the first half of the fiscal year is meeting the borrowing target with the Treasury currently at KES 10.01Bn net borrowing position,” Genghis state.

In the current uncertain environment, the analysts expect the market to continue managing risk by staying short, forcing the Central Bank to continue issuing short term debt.

“We do not believe this is sustainable and believe pressure will pile on CBK to begin accepting more expensive money as: they fall further behind the borrowing target and revenue collection falters due to the ongoing economic growth slowdown, which in turn will push up yields on the short end of the yield curve.”


The Supreme court, in a 4-2 majority decision, determined that: the election held on August 8th was not in accordance with the Constitution rendering the election null and void and President Uhuru Kenyatta was not validly declared as President elect by the Independent Boundaries and Electoral Commission (IEBC).

In addition, the Supreme Court ordered IEBC to organize and conduct fresh presidential elections within sixty days in strict conformity with the Constitution.

IEBC has called for fresh presidential elections to be held on Tuesday October 17th. 

Read: IEBC seeks Ksh 11.83Bn for repeat presidential poll



About David Indeje

David Indeje is a writer and editor, with interests on how technology is changing journalism, government, Health, and Gender Development stories are his passion. Follow on Twitter @David_Indeje David can be reached on: (020) 528 0222 / Email: [email protected]

View other posts by David Indeje


More Articles From This Author







Other Related Articles








SOKO DIRECTORY & FINANCIAL GUIDE

ARCHIVES

2018
  • January 2018 (291)
  • February 2018 (220)
  • March 2018 (279)
  • April 2018 (226)
  • May 2018 (240)
  • June 2018 (137)
  • 2017
  • January 2017 (183)
  • February 2017 (195)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (206)
  • July 2017 (190)
  • August 2017 (196)
  • September 2017 (186)
  • October 2017 (236)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (167)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (246)
  • June 2016 (183)
  • July 2016 (271)
  • August 2016 (250)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (154)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (109)
  • May 2015 (117)
  • June 2015 (121)
  • July 2015 (150)
  • August 2015 (157)
  • September 2015 (189)
  • October 2015 (171)
  • November 2015 (174)
  • December 2015 (208)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950