Lumpy Flows Exposes Kenya’s Budget Underbelly

Outsized external inflows from international financial institutions and commercial financing are expected in the coming month. This flash note assesses the lumpy inflows against the FY20/21 budget outturn.

We estimate an aggregate KES 264.1Bn from both multilateral and commercial financing (Eurobond IV). That is expected in the final month of this fiscal year (June 2021). Undoubtedly, these flows will support KES stability in the near term.

As of the end of the ten months in this fiscal year (10M20/21), the National Treasury reported net foreign financing at KES 112.50Bn, which translates to KES 306.30Bn disbursements in the months of May and June.

We can account for KES 264.1Bn, which means that the remainder is project funds. Nonetheless, the absorption of development funds has been sluggish, trailing its target by KES 59.4Bn (-37.3%) at the end of 9M20/21.

For argument’s sake, we assume that this balance (c. KES 42.2Bn) is disbursed in its entirety in these final two months of the fiscal year.

In addition to this expected lumpy external financing, we do not discount the anticipated outsized tax receipts in June.

The subject month has historically recorded elevated tax receipts in comparison to the average in the hitherto 11 months. For the current fiscal year, we calculate a monthly average of KES 119.1Bn in the first 10 months of FY20/21 and estimate June tax receipts at KES 138.9Bn.

This takes us to the next critical issue. At a fundamental level, the question that keeps popping in our heads is how fast the outsized flows (external financing and tax receipts) will be deployed.

Notably, KES 1.73Tn was the aggregate budget spending (excluding debt redemptions) in the period. This implies that KES 1.16Tn remains pending at the start of this final quarter (FY20/21 target: KES 2.89Tn).