KENYA: The draft Budget Review and Outlook Paper for 2023 was published by Kenyan authorities on 15 September.
Key to the document is that the cabinet secretary acknowledges that there was a shortfall of KES103.4 billion (US$0.7 billion) in ordinary revenue in FY22/23, they have therefore estimated a revenue risk of KES133.5 billion (US$0.9 billion) in FY23/24. Authorities believe they have put measures in place to address this, primarily through the tax ordinances in the Finance Act 2023 and general administrative efficiencies.
They now expect revenue to lift to KES3,003bn (18.6 percent of GDP) from the approved budget of KES2,986 billion. More so, on expenditure, authorities have total expenditure now lifting to KES3,909bn (24.2 percent of GDP) in FY23/24 from initial estimates of KES3,734 billion as they raise recurrent and development expenditure. This results in a deficit of 5.6 percent of GDP (KES906 billion or US$6.16 billion) to be funded through KES426 billion on net domestic funding, and KES449bn (US$3.05 billion) on net external side. Recall, that they had initially estimated the deficit to come in at 4.4 percent of GDP.
Our view for this year has been that revenue could come in lower than what authorities expect, and we have highlighted that despite the new Finance Act, revenue shortfalls are still likely in FY23/24. We acknowledge that budget review is a more practical approach for this fiscal year โ further cuts might still be necessary to anchor expenditure over the medium term.
The Central Bank of Kenya (CBK) Governor Kamau Thugge flagged the high cost of a potential debt rollover. According to Thugge, the CBK plans to use reserves to settle the US$2 billion eurobond that matures in June next year and avoid the potentially high costs of tapping into the debt markets to fund the repayment. Thugge added that current dynamics in the capital market suggest the country could pay rates of as high as 13 percent to 14 percent to borrow, which would be “very expensive”. Kenya’s foreign exchange reserves stand at a paltry US$7.0 billon, but it is worth noting that the government is implementing measures to ease pressure on reserves amid skyrocketing energy and food import bills.
Yesterday, the Energy and Petroleum Regulatory Authority announced that Kenya had extended a deal to purchase fuel on credit directly from three state-owned Gulf firms for another year. Under the agreement’s terms, the government can defer payments for six months, compared to a previous requirement in which it required US$500 million a month to pay for cargo within a week of delivery. According to the ERA Director-General, extending the deal helps Kenya avoid “a double whammy,” given that in January 2024, Kenya would be required to pay both spot prices for fuel and accumulated amounts due under the existing agreement if it had not extended. (ETM)
