Key highlights of Kenya’s 2021/22 budget explained

Kenya's Treasury Cabinet Secretary Ukur Yatani presented the 2021/22 fiscal year budget to Parliament, outlining a plan to spend $33.3 billion in the upcoming financial year. Stephen Nganga, KPMG East Africa's Associate Director for Tax and Regulatory Services, shared insights on the budget and its implications in an interview with CNBC Africa. The budget presentation comes at a critical time for Kenya, with the ongoing COVID-19 pandemic impacting the economy and citizens eagerly awaiting measures to support recovery. Analysts emphasize that this budget is not merely numbers on paper but a roadmap for the country's development and economic growth. Citizens' Expectations and Development Agenda As Kenya approaches the end of President Uhuru Kenyatta's term, there is a heightened focus on completing key projects before the next election. The budget reflects this priority, with a significant portion allocated to development expenditure aimed at fulfilling the government's agenda. The budget is expected to address the impact of COVID-19 on businesses and individuals, offering support and stimulus measures to aid in economic recovery. While the government aims to prioritize ongoing projects, there is also an emphasis on kickstarting new initiatives to drive growth and create employment opportunities. Revenue Sources and Fiscal Sustainability With the budget heavily emphasizing the 'Big Four Agenda,' which includes manufacturing, healthcare, affordable housing, and food security, the discussion turns to financing. Approximately 80% of the budget will be funded through revenue collection, amounting to around $23 billion. The remaining 20% will be sourced from borrowings, including both external and domestic loans. Given the current economic climate and limitations on imposing new taxes, the government plans to enhance tax collection through administrative measures and alternative dispute resolution mechanisms. By encouraging voluntary tax compliance and recovering back taxes, the government aims to boost revenue without burdening taxpayers with additional levies. IMF Conditions and Economic Impact In April, Kenya entered into an agreement with the International Monetary Fund (IMF) for fiscal consolidation, which included commitments to certain conditions such as tax reforms and privatization of state entities. The budget aligns with these conditions, introducing measures like increased tax rates on fuel and reevaluating funding for public institutions. While these moves are intended to streamline government spending and improve revenue collection, there are concerns about the broader economic impact. Analysts caution that measures like increasing taxes on essential commodities could have ripple effects on inflation and consumer purchasing power, warranting a careful balance between revenue generation and economic stability. Debt Ceiling Concerns and Parliamentary Oversight Parliament's role in overseeing fiscal responsibility is emphasized, with a strict cap of 7.5% of GDP set for government borrowing. However, with the current budget indicating a potential deficit due to the pandemic's effects on revenue collection, there may be pressure to exceed this limit. The conversation around increasing the debt ceiling looms large, as the government grapples with the need to fund essential services and infrastructure while maintaining fiscal sustainability. As debates on budget approval unfold in Parliament, tough decisions regarding debt levels and sustainable financing strategies will be crucial for Kenya's economic future.