The implications of Kenya’s 2018 Budget


Henry Rotich and THUGGE to present 2018 budget, the highest in Kenya's history
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  • By: Danson Dansonx

    This year’s budget met a worried audience as Kenya’s official public debt surpassed the Sh5 trillion mark casting the light on Treasury officials and renewing the long running debate on the country’s ability to carry the load in the long term. This has caused many to wonder what type of economic state we will leave for the next generation. As the Cabinet secretary for Treasury spoke, the Government statistics showed that the latest rise in the debt accumulation resulted largely from external borrowing, which pushed the total outstanding foreign debt for the country to Sh2.563 trillion as at the end of February while domestic debt stood at Sh2.448 trillion, making for a total Sh5.011 trillion.

    To combat this the government will continue to diversify the sources of funding for its development  agenda over the medium term by maintaining a presence in the international capital markets. The government says that it will seek to maximize its access to official development assistance on concessional terms, while limiting use of non-concessional and commercial external borrowing to development projects with high financial and economic returns.

    This is a welcome initiative since in our current economic state the ratio of public debt to gross domestic product had previously been estimated at between 45-50 per cent but will probably have shot up by a further 10 per cent by the end of June.

    How will the budget affect different sectors of the economy?

    Manufacturing

    On manufacturing the Budget proposes to increase the contribution of the manufacturing sector to the GDP to 15 percent by 2022 by adding between US Dollar 2 to 3 billion to our GDP. This will increase the number of jobs in the manufacturing sector by more than 800,000 which offers  employment opportunities to many unemployed youth within the country.

    According to Mr Rotich this will be achieved through establishing leather parks and textile industries in various parts of the country while reviving and transforming sectors of the economy such as the construction industry. He also intimates that there will also be the re-establishing of the automobile industry which will make vehicles more affordable. The budget aims at targeting investors who are ready to invest in specific areas by providing tailor-made incentives for example the Government is also aiming at providing  land in Naivasha for potential investors interested in setting up their activities in the Special Economic Zone to benefit from the SGR and cheap geothermal power generated nearby.

    Food and Nutrition Security

    On food security, the government has a plan to grow enough food to feed Kenyans at affordable rates. Achieving this will most likely require enhancing large-scale production by placing an additional 700,000 acres of land through public-private partnerships and by promoting investments in post-harvest handling as well as adopting contract farming and other commercial off-taking arrangements which include supporting the development of agro parks or hubs to serve as a link to farmers and markets.

    Affordable Housing

    Through this new budget the government aims to improve the access to adequate and affordable housing for all Kenyans. The government aims to counter the fact that the country’s urban centres face a shortage of 200,000 housing units annually, a shortage which is aimed at rising to 300,000 units by the year 202. At the moment, only about 50,000 new housing units are being constructed every year. This is aimed at enabling the President succeed in implementing his big four agenda.

    It is good news for Kenyans as the government intends to  propose an amendment to the Employment Act to provide that an employer shall contribute to the National Housing Development Fund, in respect of each employee’ in his or her employment 0.5% of the employees gross monthly emolument subject to a maximum of five thousand shillings while the employee will contribute 0.5% of their monthly gross earnings.

    Tax Policies

    The government aims at strengthening revenues through the introduction of tax policy measures which are at the core of achieving its fiscal targets. The government will also utilize other revenue enhancement measures which have the potential of raising project revenues  by 17.5 percent to Ksh 1, 949.2 billion (equivalent to 20.0 percent of GDP) in the Financial year 2018/19 from the 1,659.6 billion collected previously. The government is also planning to introduce to parliament the Finance Bill, 2018, which contains the taxation and financial proposals, along with other documents for consideration and approval. Taxes on basic commodities such as maize flour, bread, milk and cooking gas are also set to rise meaning that it will now cost you more to put a plate of ugali on your table.

    Expenditure

     

    The government also aims at strengthening expenditure control and improving the efficiency of public spending through public financial management reforms in order to free fiscal space for priority social and economic projects. The Treasury secretary said that the government is putting in place a plan to address the challenges we face in project identification, preparation and execution, which have been responsible for delays, cost overruns and pending bills. Towards this goal the government has established the Public Investment and Management Unit at the National Treasury in order to improve the management and budgeting of public development projects. This Unit will ensure that all the projects in the budget are appraised before they are committed. This will improve efficiency in public investment by streamlining spending and reducing waste.

    The government projects a total expenditure at Ksh 2,556.6 billion (equivalent to 26.3 percent of GDP) in 2018/19 which consists of a recurrent expenditure which  will amount to Ksh 1,550.0 billion (equivalent to 15.9 percent of GDP),a  development expenditure  projected at Ksh 625.1 billion (equivalent to 6.4 percent of GDP), and transfers to County Governments amounting to Ksh 376.4 billion (or 3.9 percent of GDP). This coming financial year is also expected to witness the implementation of the second phase of the salary review following the 2017 Job Evaluation by the Salaries and Remuneration Commissions in a bid to control the soaring wage bill

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