Kenyans will have to dig deeper into their pockets to finance key infrastructure and social projects, while at the same time cushioning vulnerable groups in an expansionist Ksh1.6 trillion ($18.8 billion) budget.

Consumers, despite assurances to the contrary by Treasury Cabinet Secretary Henry Rotich on Thursday evening, are likely to suffer from proposed changes to the value added tax (VAT), from which the government expects to raise Ksh10 billion ($118 million).

A new 1.5 per cent duty on imported goods is expected to yield Ksh15 billion ($177 million) for the building of a new standard gauge railway line between Mombasa and Kisumu, a key infrastructure project.

The Uhuru Kenyatta administration, in its first budget, also kept faith with its core constituency of women and youth, doling out a number of concessions to them, alongside other vulnerable groups.

Reading the budget as the first non-MP “stranger” in parliament, Mr Rotich faced an overall fiscal deficit of Ksh329.7 billion ($3.9 billion), which will be funded through Ksh223 billion ($2.63 billion) from foreign borrowing and Ksh106.7 billion ($1.26 billion) in local debt. The heavy borrowing is necessitated by flat tax collections.

For example, in the third financial quarter ending March 31, the Kenya Revenue Authority had only collected Ksh560 billion ($6.8 billion), Ksh27 billion ($317 million) less than the initial government target for the period.

This, added to the total Ksh200 billion that it must transfer to the 47 county governments as outlined by the country’s new Constitution, means the central governments faces an uphill task as it seeks to maintain the infrastructure spending momentum that has supported economic growth in the past decade.

The country has set aside Ksh22 billion ($258 million) towards the construction of a standard gauge railway track between Mombasa and Kisumu, which is expected to be completed in the next three years.

“I also propose an amendment to the Customs and Excise Act to introduce a Railway Development Levy of 1.5 per cent on all imported goods, in order to mobilise and additional Ksh15 billion ($177 million) to fund construction of a standard gauge railway line from Mombasa to Kisumu,” said Mr Rotich.

He also removed duty on importation of items used to facilitate railway operations in order to support the expansion and development of the railway network in the region.

Cutting costs

The project is significant for Kenya as well as the hinterland countries of Uganda, Rwanda and Burundi as it will reduce the time taken to transfer goods from the Mombasa port to the country’s western border by about 300 per cent, and cut costs from Mombasa to the border point of Malaba by 80 per cent.

For Rwanda and Burundi, this is a significant development, considering that by some estimates transport expenses add up to 40 per cent of the final retail prices of imported goods as well as exports, reducing the competitiveness of the two countries and scaring off potential investors.

The country has also set aside Ksh3.7 billion ($43.7 million) for construction of the first three berths and associated infrastructure of the Lamu port under the LAPSSET project.

The project is important for the landlocked countries of South Sudan and Ethiopia as it offers a strategic alternative to the ports in Sudan and Djibouti.

For example, South Sudan is currently unable to export its oil following a resumption in hostilities with the North. A functioning Lamu port would act as an alternative and help cushion the economy from the negative effect of disruptions in oil exports on the local economy, given that oil exports account for 98 per cent of the country’s foreign earnings.

Kenya has also set aside Ksh78.5 billion ($923 million) for investments in the power sector, of which Ksh12.5 billion ($147 million) will be for geothermal development and Ksh23.8 billion ($280 million) for enhancing power distribution.

Kenya plans to add at least 3,000MW of new power between now and 2017, which is about double the country’s current installed capacity of 1,500MW. This, coupled with the government’s target of connecting at least 300,000 new households to the national grid, means the country must invest in building its infrastructure.

Across the region, power utilities are facing growing challenges as they seek to balance between power at an affordable rate and increasing charges to fund infrastructure development.

Road expansion

The government has also set aside Ksh97.9 billion ($1.15 billion) for continued road expansion, upgrading and rehabilitation.

On security, the government has committed Ksh67 billion ($788 million) to the police, and adopted progressive measures to improve facilities. In the 2013/2014 budget, the state will spend Ksh3 billion ($35.2 million) in leasing 1,200 motor vehicles for the police. This will enable the government to cut down on acquisition and maintenance costs.

The Kenyan government also put aside resources for establishing social protection projects for vulnerable groups. It committed to transferring Ksh8 billion ($94.11 million) to guardians of orphans and vulnerable children. The figure will double the number of households under the programme from 155,000 to 310,000.

The country will also spend Ksh3.2 billion ($376 million) to double the number of elderly members of the society receiving a monthly cash stipend from the government from 59,000 to 118,000.