On 15th June 2023, the National Treasury tabled the budget statement for the Fiscal Year 2023/2024 (FY23/24).
The theme of this year’s budget is “Bottom-up Economic Transformation Agenda (BETA) and Climate Change Adaptation for Improved Livelihoods of Kenyans.”
The budget places focus on interventions to bolster food security, address the cost of living, enhance job creation, expand the tax base, and increase foreign exchange earnings.
The Economic Survey 2023 (KNBS) data indicates that Kenya’s real GDP growth slowed to 4.8% in 2022, down from 7.6% in 2021. Inflationary pressures, currency depreciation, and declined productivity weighed heavily on economic growth. The 2023 growth outlook remains subdued, however, with expectations of a mild recovery in 2024.
The FY23/24 expenditure budget stands at KES 3.68Tn – translating to 22.6% of GDP. On the other hand, The National Treasury projects to collect up to KES 2.96Tn in total revenues, appropriations-in-aid, and grants.
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Furthermore, the overall Expenditure to GDP ratio is set to decline from 23.7% of GDP to 22.6% of GDP. These changes are broadly expected to lower the budget deficit from the current 5.7% of GDP to 4.4% of GDP in FY2023/2024.
The Treasury aims to focus on five key sectors (‘Big Five’) forming the backbone of the Medium Term Plan IV (2023-2027) – in line with Kenya Vision 2030. The plan is also cognitive of United Nations Sustainable Development Goals (SDGs).
The sectors under focus are:
- Agricultural Transformation and Inclusive Growth,
- The Micro, Small, and Medium Enterprise (MSME) Economy,
- Housing and Settlement,
- Enhancing Quality and Affordable Healthcare, and
- Digital Superhighway and Creative Economy.
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According to the Medium-Term Debt Management Strategy Report (KNBS, 2023), the present value of Kenya’s public debt stood at 60.0% of GDP; of which domestic debt accounted for 33.2% of GDP while external debt accounted for 26.8% of GDP.
As of March 2023, public and publicly guaranteed debt in nominal terms stood at KES 9,390.7Bn. This stands close to the statutory public debt limit of KES 10,000Bn.
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In a Debt Sustainability Report (2022) published by the World Bank and the International Monetary Fund, Kenya’s debt levels remain sustainable, however with an elevated risk of debt distress.
The fiscal year 2023/2024 budget comes amid protracted global economic shocks: sustained geopolitical tensions, supply-chain disparities, widespread inflationary pressure, and bouts of banking sector turmoil in developed markets.
These shocks have heightened uncertainty across the globe, leading most central banks to tighten monetary policy in a bid to anchor inflation expectations.
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The consensus global growth outlook for the year remains subdued, however, with expectations of a mild recovery in 2024. The Economic Survey 2023 (KNBS) data indicates that Kenya’s real GDP growth slowed to 4.8% in 2022, down from 7.6% in 2021.
The lag was largely on account of exogenous global shocks and adverse climatic conditions. This growth was largely driven by the services and manufacturing sectors, whereas a contraction in the agriculture sector prevailed for the second consecutive year.
Both consumer and producer price index inflation rates have persisted over several months. The Consumer Price Index (CPI) inflation rate clocked 8.0% as of May 2023 – 50bps above the National Treasury’s upper-bound threshold of 7.5%.
The quarterly Producer Price Index (PPI) inflation rate stood at 15.1% as of December 2022. Despite total private consumption expenditure rising markedly by 12.7% in 2022 to KES 10.1Tn, price levels paced faster than volume impact.
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Kenya is largely an open economy with a huge reliance on critical imports such as petroleum, pharmaceuticals, and food supplies. This exposes the economy’s underbelly to adverse price movements on such imports. As such, Kenya’s inflation derives largely from cost-push factors more so than demand-pull factors.
Intriguingly, KNBS data reveals that despite a general reduction in import volumes throughout 2022, Kenya’s total import bill for the year 2022 climbed by 17.5% to KES 2.49Tn.
This points to the nimble price jump across major imported commodities – notably petroleum, metals, and food commodities.
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