KRA First Half of FY2017/18 Revenue Target Up by 6.63pc

Kenya Revenue Authority (KRA) collected 630.37 billion shillings in July-December, a 6.63 percent increase from a similar period last year.

According to Treasury Cabinet Secretary Henry Rotich, KRA collected 591.17 billion shillings in a similar period in 2016 citing an increase on the latest data.

Last week, the National Treasury reviewed its budget for the fiscal year 2017/18 taking into account faltering revenue performance and ballooning expenditure needs.

“That said, public debt concerns dominated the budget story with emphasis shifting to external borrowing as a key source of government financing,” says Stephani Kimani a Research Economist from Commercial Bank of Africa in her Weekly Fixed Income Report.

The budget deficit (as a % of GDP) is projected to widen to 7.20 per cent compared to an earlier budget estimate of 6.80 per cent. The deficit will be financed via domestic borrowing amounting to 293.80 billion shillings (Up 6.57%) and external borrowing to the tune of 323.20 billion shillings (Up 26.27%).

Consequently, to be able to hit their full year target for tax income of 1,44 trillion shillings, KRA will be forced to collect almost 134.94 billion shillings every month between January and June.

“The implications of domestic borrowing are largely focused around its crowding out effects. However, low debt absorption in recent months proves that this may be unlikely as the government seeks to facilitate the flow of credit to the private sector,” says Stephanie.

Cytonn Investments also notes the government is still behind its domestic borrowing target for the current fiscal year, having borrowed Kshs 135.1 bn, against a target of Kshs 236.7 bn (assuming a pro-rated borrowing target throughout the financial year of Kshs 410.2 bn).

Cytonn Analysts state that “If the domestic borrowing target is revised downwards to 293.8 Billion Shillings as per the 2018 Budget Policy Statement (BPS), the pro-rated target comes in at 169.5Billion Shillings, meaning the government will still be behind on its borrowing target but marginally.”

“The move to cut domestic borrowing could be aimed at reducing pressure on interest rates from investors in the domestic market who are bidding for higher yields, and instead increase borrowing from the foreign market,” they add.

Non-tax income dropped by 4.76 billion shillings in the July-December period to 26.53 billion shillings compared to the year before, the exchequer data shows.

Revenue in the first half of the current year was constrained by reduced economic activity, largely due to a bruising presidential contest which delayed investment decisions, and credit crunch in the private sector.

In the first five months of the year, revenues collection consistently lagged behind targets due to the underperformance of the main revenue tax heads.

On the other hand, there have been elevated expenditures pressures as a result of the adverse spillover effects of the prolonged drought, the repeat of the Presidential Election and salary awards for Universities Staff and Nurses.

By end, November 2017, the total cumulative revenues including Appropriation in Aid (A-I-A) collected amounted to 558.4 billion shillings against a target of 611.0 billion shillings. The recorded shortfall of 52.6 billion shillings was as a result of an underperformance of the ordinary revenues by 29.7 billion shillings and the ministerial A-I-A by 22.9 billion shillings.

The shortfall in ordinary revenue was on account of underperformance in all the broad categories of ordinary revenues except import duty.

Total expenditures and net lending amounted to 720.2 billion shillings against a target of 824.2 billion shillings falling below target by 104.0 billion shillings at the end of November 2017.

The shortfall was as a result of lower than projected disbursements to County Governments due to the delayed enactment of the County Revenue Allocation Act as well as below target absorption of development expenditures despite the faster spending in the recurrent expenditures by the National Government.

Recurrent expenditure amounted to 510.2 billion shillings against a target of 494.8 billion shillings, representing above target spending of 15.4 billion shillings. The faster-spending was mainly recorded in operations and maintenance which accounted for 35.6 billion shillings and higher than programmed domestic interest payments of 12.0 billion shillings.