In response to a challenging fiscal landscape, Kenya’s National Treasury has revised its borrowing strategy for the 2023/24 fiscal year. The move, announced today, reflects a pragmatic response to lower-than-expected tax collection and a downward revision of ordinary revenue forecasts.
Originally targeting Sh718.9 billion in borrowing, the Treasury has now increased its goal by Sh168 billion, setting a new target of Sh 886.6 billion. This adjustment comes after a careful assessment of the country’s revenue performance in the first five months of the financial year, with the Kenya Revenue Authority (KRA) achieving only a 34.6 percent collection rate against its 2023/24 targets. This falls short of the 40 percent collected during a similar period in the previous fiscal year.
To align with the challenging revenue scenario, the Treasury has prudently adjusted its ordinary revenue forecast from Sh2.787 trillion to Sh2.5768 trillion for the current financial year. The Revised Fiscal Framework for the FY 2023/24 Budget outlines total revenues at Sh3,047.6 billion, with ordinary revenues at Sh2,576.8 billion and Ministerial Appropriations in Aid at Sh470.8 billion.
Despite the initial push to reduce reliance on borrowing and explore alternative financing methods such as Public Private Partnerships (PPPs), the government finds itself adapting to economic realities. The proposed borrowing of Sh 886.6 billion, if realized, would constitute 5.5 percent of Kenya’s GDP, reflecting a 1.1 percentage point increase from the original target of Sh718.9 billion (4.4 percent of GDP).
This strategic shift raises eyebrows, especially considering the government’s commitment to a more conservative borrowing strategy. In the 2022/23 fiscal year, the government borrowed Sh437.55 billion domestically and $2.12 billion (approximately Sh297 billion) from external sources, totaling over Sh735 billion. If the current projection holds, the government’s borrowing for the 2023/24 financial year would surpass the previous year’s total by approximately Sh150 billion.
As Kenya navigates economic uncertainties, the Treasury faces a delicate balancing act, striving to meet financial obligations while adapting to the evolving fiscal landscape. The decision to adjust the borrowing strategy underscores the need for flexibility in financial planning as the government addresses the challenges of revenue generation and expenditure management in the coming months.
Photo (By Josphat Thiongo)
By; Montel Kamau
Serrari Financial Analyst
9th January, 2024
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