Kenya’s Budget proposes to raise debt ceiling to fund recovery

Tuesday April 12 2022
The new Kipevu Oil Terminal.

The new Kipevu Oil Terminal has a capacity of 100,000 metric tonnes and can handle over four vessels at a time. Under the new taxation measures, petroleum products that have been adversely impacted by higher crude prices will be spared. PHOTO | KEVIN ODIT | NMG

Kenya’s Cabinet Secretary for the National Treasury Ukur Yatani tabled a Ksh3.3 trillion ($28.69 billion) spending plan for the 2022/2023 fiscal year with a focus on accelerating growth of an economy destroyed by Covid-19.

The plan also seeks to ensure implementation of the Jubilee government’s legacy projects in agriculture, manufacturing, housing and health sectors.

The budget, the last under President Uhuru Kenyatta’s administration, has been crafted with a view to improving the livelihoods of Kenyans weighed down by a high cost of living and create additional employment opportunities in an economy that lost over 1.7 million jobs to the pandemic in 2020.

The ambitious spending plan that focuses on the enhancement of the Economic Stimulus Programme and implementation of the infrastructure projects under the ‘Big Four’ agenda calls for increased funding, with Yatani targeting Ksh50.4 billion ($438.26 million) in additional tax revenues and Ksh862.5 billion ($7.5 billion) in new borrowing during 2022/23.

With the government debt closing in on the Ksh9 trillion ($78.26 billion) ceiling, Yatani has proposed an amendment to the Public Finance Management Act to create more room for increased borrowing to ease the growing expenditure pressures.

Community breach


“The current legal numerical public debt ceiling has constrained public funding of projects while at the same time failing to consider the effects of external shocks on the economy,” Yatani said during the presentation of the budget statement before parliament on Thursday.

“We propose to replace the debt ceiling with a debt anchor and set it at 55 percent of debt to GDP in present value terms. This is in line with internationally accepted conventional practice.”

Under the proposed law change, the Cabinet Secretary for the National Treasury will be required to report to Parliament whenever the debt level swings beyond the threshold with time-bound remedial actions.

In 2019, Kenya breached the East Africa Community debt ceiling after the MPs voted to increase the debt ceiling to Ksh9 trillion ($78.26 billion) compromising the government’s bid to comply with the region’s debt target that is equivalent to 50 per cent of GDP.

Total government spending in 2022/23 fiscal year is projected at Ksh3.3 trillion ($28.69 billion) comprising recurrent spending of Ksh2.2 trillion ($19.13 billion) and development expenditure, including allocations to foreign financed projects, Contingency Fund and conditional transfers to County Governments of Ksh715.5 billion ($6.22 billion).

The equitable share to the counties is projected at Ksh370 billion ($3.21 billion).

The projected total revenue collection including Appropriation-in-Aid and grants for the 2022/23 fiscal year stands Ksh2.4 trillion ($20.86 billion) of which ordinary revenue is projected at Ksh2.14 trillion ($18.6 billion).

The fiscal deficit is projected at Ksh862.5 billion ($7.5 billion) which will be financed through net external financing of Ksh280.7 billion ($2.44 billion) and net domestic financing of Ksh581.7 billion ($5.05 billion)

“I will be proposing additional allocation to various activities under the Economic Stimulus Programme to further support livelihoods and stimulate economic activities,” said Yatani.

Yatani said the proposed taxation measures contained in the Finance Bill (2022) are expected to generate an additional Ksh50.4 billion ($438.26 million) to the exchequer for the 2022/23 fiscal year budget.

Under the new taxation measures Kenyans will be hit hard with higher prices of fruit juices, beer, cigarettes and bottled water after the National Treasury proposed to increase the Excise duty on these products by 10 percent, save for petroleum products that have been adversely impacted by higher crude prices.

Other taxation measures include taxation of gains accruing to non-residents from transactions involving financial derivatives in Kenya and introduction of excise duty of 15 percent on fees charged by all TV stations, print media, billboards, and radio stations for advertisements for alcoholic beverages, betting, and gaming.

The National Treasury also proposed to change the taxation regime for liquid nicotine used in the manufacture products beyond e-cigarettes from the current shillings per unit to an excise duty of Ksh70 ($0.6) per millilitre, with the aimed of making liquid nicotine used in these devices less accessible to users.

Big Four Agenda

“In light of the revenue challenges and significant expenditure demands, spending in the 2022/23 fiscal year will focus on supporting economic recovery and the “Big Four” Agenda to ensure the highest impact on the well-being of Kenyans,” said Yatani.

Public debt stood at Ksh8.02 trillion ($69.73 billion) in December 2021 comprising Domestic debt of Ksh4.03 trillion ($35.04 billion) and External debt of Ksh4.17 trillion ($36.26 billion).

The cumulative external debt service last year (2021) stood at Ksh137.34 billion ($1.19 billion) while actual cumulative domestic debt interest payment stood at Ksh217.28 billion ($1.88 billion) during the same period.

The government’s allocation towards servicing the public debt in the 2021/22 fiscal year amount to $10.44 billion, compared with $8.55 billion allocated in the last fiscal year.

The National Treasury also revealed that it will be tabling Customs taxations measures for consideration by the East African Community Ministers responsible for finance and economic affairs in their Pre-budget consultations planned for May 2022.

The Customs measures, which will become effective from July 1, 2022, are generally meant to promote manufacturing and enhance exports by making inputs and raw materials used in the manufacture of goods more affordable, hence lowering the cost of production.

“In addition, some of the measures are aimed at enhancing the competitiveness of locally manufactured goods through protection from unfair competition by imported goods while some are geared towards protection of critical sectors of our economy, like agriculture, from unfair competition occasioned by importation of products that can be produced by our gallant farmers,” said Yatani.

Kazi Mtaani Programme

In this year’s Budget Treasury allocated an additional Ksh20.6 billion ($179.13 million) towards implementation of the third Economic Stimulus Programme to support various activities including youth empowerment and employment creation under the Kazi Mtaani Programme, and improving education, health, environment, water and sanitation facilities.

Yatani also allocated Ksh146.8 billion ($1.27 billion) towards implementation of President Uhuru Kenyatta’s legacy projects under the “Big Four” Agenda, Ksh1.5 billion ($13.04 million) for fertiliser subsidy and Ksh1.6 billion ($13.91 million) for enhancing liquidity to businesses.

In the 2021/2022 Budget Yatani allocated Ksh142 billion ($1.23 billion) to the ‘Big Four’ projects and an additional Ksh23.1 billion ($200.86 million) towards the economic stimulus programme.