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(African Budgetary Series) Kenya: Extending Economic Growth in 2017 While Containing Rising Debt

Kenya budget 2017

With the aim on continuing its impressive recent economic performance, Kenya’s 2017/18 budget contains 2.3 trillion KSH in expenditures. 1.3 trillion KSH of which will go to recurrent departmental spending, followed by development expenditures and county transfers.

Revenues are expected to come in at 1.7 trillion KSH, leading to an almost 600 billion KSH budget deficit (representing 6.8 per cent of GDP). Income taxes and Value Added Taxes (VAT) form the leading contributors of revenue, followed by excise and net import duties.

Majority of Kenyan Government Revenue

Sources: Leanwords and National Treasury

As of June 2017, Kenya’s Teachers’ Service Commission has received the most funding at 191 billion KSH, followed by the departments of Transport and Infrastructure. The government has committed to improving the number of teachers across the country with a successful recruitment drive last year. In total, 6,736 teachers are currently employed, an increase of 1,736 from 2016.

Kenyan teachers' service commission

Sources: Leanwords and National Treasury

Revenues as a share of GDP in 2017/18 are expected to rise 1 per cent compared to last year. Recent forecasts have the revenue to GDP ratio remaining constant at approximately 18 per cent. These figures remain low in light of the fact expenditures to GDP remained closer to 27 per cent historically; although they are expected to decrease to 24 per cent by 2020/2021. The deficit to GDP ratio is projected to decline over the next few years from 6.8 per cent this year to 5.5 per cent in 2020/2021. The decrease is anticipated as it is expected that current infrastructure projects will be completed over the next few years..

Solving the Budgetary Imbalance

Sources: Leanwords and National Treasury

Kenya’s 47 counties will receive a total 304 billion KSH in the current budget. Nairobi and Turkana have been allocated the largest amounts of 15 billion KSH and 12 billion KSH respectively. The government is currently working on draft legislation to unlock the revenue potential of Kenya’s counties. Last year, all counties’ recurrent spending did not exceed total revenue yet audits found procurement irregularities, unpaid bills, and violations of the Public Finance Management (PFM) policies.

Nairobi and Turkana

Sources: Leanwords and National Treasury

The government has done well in maintaining sustainable public debt levels yet have struggled to prevent growth. As a share of GDP, public debt levels are projected to rise from its current 52 per cent to 62 per cent in 2020/2021. Although a significant amount, debt levels remain below the 74 per cent (as a share of GDP) threshold that the IMF considers unsustainable.

Rising Public Debt Levels in Kenya

Sources: Leanwords and National Treasury

Much of Kenya’s debt is owed to external sources, specifically multilateral and bilateral creditors.

Sources: Leanwords and National Treasury

Since 2014/15 Kenya has impressively maintained real GDP growth above 5.5 per cent. This trend is expected to continue as the country makes significant infrastructure investments.

Real GDP growth in 2020/21 is projected to be 6.7 per cent. Nonetheless, Kenya will have to solve its growing external trade deficit that can slow growth. In July 2017, the trade deficit as share of GDP rose 1 per cent from last year to 6 per cent. This was mainly caused by increased cost of importing oil products and locomotive equipment for the Standard Gauge Railway.

Kenyan Real GDP Growth

Sources: Leanwords and National Treasury

Compared to last year, Kenya is hoping for sustained growth in all sectors. The largest contributors to GDP growth remain tourism, information and communication and mining activities. These sectors have all rose from last year.

Contrastingly, agriculture, electricity and financial activities have all decreased from the same period last year. Poor rains in 2016 reduced crop output and hydroelectric capacity leading to the declines in those areas.

Kenya Tourism Information Graph

Sources: Leanwords and National Treasury

Constraining excessive inflation will be important to pursuing economic growth. Higher food costs caused by poor rainfall and electricity supply concerns in 2016 saw inflation rise to its current 7.5 per cent from 6.5 per cent.

The Central Bank of Kenya has targeted inflation concerns by raising interest rates to 10 per cent. Regionally, Burundi (13.6 per cent) and Rwanda (8.1 per cent) lead inflation rates. Price growth has been relatively more subdued in Tanzania and Uganda.

Kenyan Inflation Below Tanzania

Sources: Leanwords and National Treasury

The African Budgetary Series (ABS) offers regular, analytical insight into African economics. We provide a refreshing and objective look into issues that are driving African economies. Questions or comments? Engage with us: info@leanwords.com

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