Barclays Bank of Kenya Demystifies the National Budget

Barclays Bank of Kenya, on Monday, held a forum to demystify the just read the national budget for the financial year 2018/2019.

Last week, the Cabinet Secretary for National Treasury, Henry Rotich, presented to the nation what has been described as the most expensive budget and which most have viewed as one that shifts the burden to the common man.

In the financial year 2017/2018, the deficit target in the national budget was 6.1 percent. It was then revised upward to 7.6 percent of the GDP during the supplementary budget.

To help meet the deficit, the government increased its borrowing appetite both abroad and domestically with the current public debt now standing above 5 trillion shillings.

For the year 2018/2019, the National Treasury is looking at consolidating the deficit so that it can come to 5.7 percent of the GDP. Where will this consolidation come from? Through hefty taxes to Kenyans?

To help reduce on its borrowing appetite, the government seems to have put in place ambitious revenue targets. The country aims to broaden the tax base and streamline customs procedures as it seeks to raise its domestic revenue to 1.9 trillion shillings, 40 percent higher than what was achieved in 2016/2017 financial year.

Many Kenyans and other stakeholders are concerned that the projected revenue may not be realistic and my hit hard on the already suffering common ‘mwananchi’.

While reading the national budget, the Cabinet Secretary proposed an import duty on a wide range of iron and steel products from 25 percent to 35 percent. There was also an import duty on textile and footwear, paper, vegetable oils.

In what has been seen by some as targeting MPESA and other mobile money service providers, the CS proposed an increase in excise duty on cellular phones money transfer from 10 percent to 12 percent. Mobile money service providers have rejected this proposal.

Also, the CS imposed and excise duty of 0.05 percent on any transfer of amounts of 500 shillings and above by banks or financial providers. These changes and many others in the taxing system of the country have raised concerns among many Kenyans.

According to the budget, the recurrent expenditure makes up 15.8 percent of GDP and 60% percent of the budget. The security, education and health sectors command a large part of the recurrent budget but a significant portion goes toward interest payments on debt.

Development expenditure only makes up about 6.4 percent of GDP and 24.5 percent of the budget.  Not only is the development budget significantly less than the recurrent budget, but also it is rarely fully implemented.

In an analysis given by the Barclays Bank of Kenya, Kenya’s inflation increased to 4.0 percent on year-on-year basis in the month May after bottoming at 3.7 percent in April. The rise in headline inflation was mainly due to an increase in various fuel prices.

Unfavorable base effects, according to an expert from Barclays Bank of Kenya, a recovery in domestic demand and relatively high energy prices should push inflation toward the upper end of the CBK’s 5 percent ±2.5pp inflation target band in Q4 18.

“While we expect some changes to the interest rate capping law in the coming months, for now, the interest rate caps continue to complicate monetary policy transmission. Hence, we believe that the CBK may be inclined to keep its policy rate at 9.5% for the remainder of the year,” said a statement from Barclays Bank.