Kenya: Treasury Unlikely of Announcing Any New Stimulus Package – Analyst

Nairobi — As Kenyans wait for the budget reading of the 2021/22 financial year, we spoke to EFG Hermes Research Analyst in the Kenyan Market Vinita Kotedia on the outgoing budget, what to expect and more:

1. Kindly do a recap for us, the country’s budget for the last one year, would you say it was effectively implemented?

Budget performance in the FY 2020/21 was greatly affected by the effects of COVID-19.

The Treasury registered revenue shortfalls (down by 12.9% as of December 2020) as a result of a number of tax reliefs (lowered corporate tax, Individual Income tax and Value Added Tax) as well as weak business environment due to restrictions on movement.

Total government expenditure was also below the projected amount by KES 44bn as of December 2020.

Both recurrent and development expenditure reduced as National government operations were suppressed by the pandemic and lower than projected payments were made towards compensation of employees and payments of foreign interest.

2. With the coronavirus pandemic still a persistent problem, how do you expect Treasury to address this?

The National Treasury intends to seek for the extension of debt suspension from the Paris Club as well as other creditors; the current debt relief agreements are due to expire in June 2021.

Further extension of debt relief will provide adequate budget support to bolster economic recovery.

Moreover, the Treasury is expected to receive $750 million from the World Bank under the Development Policy Operations (DPO), while the IMF is expected to complete the second review for release of $410 million under the 38-month, $2.34 billion program for Kenya approved in April 2021.

These facilities will further aid the Treasury with budget management in the face of COVID.

3. Health and tourism were among the biggest winners of the budget, which sectors do you expect Treasury to focus on this time round?

According to the budget proposals the Treasury intends to focus on energy, infrastructure and ICT, health, education and tourism.

5. Do you foresee Treasury announcing a stimulus package to help Kenyans deal with the impact of COVID-19?

Disbursement of a stimulus package will really depend on how the COVID situation evolves in the country. Given the present circumstances the government is likely to focus resources towards availing enough vaccinations doses for its population, and avoid imposing restrictions on movement until it’s absolutely necessary.

A stimulus package may only be a probability if the country will go into a widespread lockdown due to worsening COVID situation, but chances are slim since the fiscal space has been almost entirely exhausted with the fiscal deficit widening near to 9% of GDP in the current fiscal year and debt levels approaching 70% of GDP.

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