Kenya will now borrow at least Sh1 trillion more in the current financial year 2020/2021 to plug the gap left by revenue shortfall and ongoing stimulus measures aimed at cushioning Kenyans against the adverse impact left behind in the wake of the COVID-19 pandemic.
The Budget Review and Outlook Paper published by the National Treasury shows that the government will seek loans amounting to Sh600 billion from the domestic market while another Sh401.8 billion will be sourced externally.
The gap currently stands at Sh161.2 billion higher than the Sh840.2 billion the treasury had projected in the budget estimates. The deficit will similarly rise to 8.9pc of the GDP compared to the estimated 7.5pc.
This comes even as Cabinet Secretary Ukur Yatani revised upwards the current financial year spending to Sh2.92 trillion from Sh2.77 trillion.
“In particular, the revenue shortfalls in the fourth quarter of the FY2019/20 was largely due to the severe disruptions on economic activities from the measures put in place to contain the spread of the COVID-19 Pandemic,” CS Yatani said.
However, analysts say that increased borrowing in the domestic market could be counterproductive especially to Micro, Small, and Medium Enterprises (MSMEs) which are in dire need of credit as Kenya plans for post-COVID recovery.
“If banks will still be pushing money to the government, then we will have a tough business environment and the recovery which that we hope will remain flat. The main stimulus business need is access to finance to rebuild and restock,” Ken Gichinga, Chief Economist at Mentoria Economics said.
“Any government borrowing that is coming in will really set back access to finance for businesses and they are the job creators. So you might see businesses are not recovering at the pace we had hoped for and those 1.7 million jobs which had been lost will take a long time to return.”
CS Yatani has also warned state agencies to prepare for budget cuts with the scrapping of non-core allocations in order to redirect expenses to finance Big Four Agenda, initiatives under the Economic Stimulus Programme as well as the Post Covid-19 Economic Recovery Strategy.
“All the Sector Working Groups are required to carefully scrutinize all proposed Ministries, Departments and Agencies (MDAs) budgets and ensure strict adherence to the hard sector ceilings and tight deadlines provided in this document,” CS Yatani stated.
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