Business and Finance Journalists query Kenya’s growing expenditure and debt at Media Policy Breakfast

Posted On Monday, 10 June 2019 15:33
Journalists' at a policy breakfast on 31st May 2019 Journalists' at a policy breakfast on 31st May 2019

By Rosemary Okello-Orlale

As Kenyans, through the Ministry of Finance, Planning and National Development, are preparing for the budget for the 2019-2020 Fiscal Year to be presented to the legislature for approval on 1st July 2019, the issue of heavy debt has captured the main narrative, clouding the importance of the budgeting strategy and process in Kenya.

During a recent Policy Breakfast by Strathmore University Business School and Business Advocacy Fund for Business and Finance Journalists on Public Finance and Revenue Performance in line with the 2019-2020 Fiscal Strategy, the issue on how the growth of tax revenue has fallen short of the ever-ambitious growth in public expenditure dominated the session.

Kenya’s revenue portfolio is significantly driven by tax revenue and the primary contributor to tax revenue is income tax. Elias Wakhisi, Manager, Public Policy, ICPAK, who was one of the key speakers at the Policy Breakfast noted that the current expenditure deficit is at Kshs 38 billion. Meanwhile, Kenya’s revenue portfolio is significantly driven by tax revenue and the primary contributor to tax revenue is income tax.

According to him, PAYE contributes a large proportion to overall tax revenue, with only 3 million Kenyans paying it.  This is even though around 12 million Kenyans are eligible to pay taxes.  Mr Wakhisi noted that “Direct taxes drive the tax revenue structure of a country and efforts should be made to diversify the sources of revenue and widen the tax base,”.

Currently, the external public debt stock comprises principally of loans from multilateral, bilateral and commercial creditors. These make up 25.6% of GDP and the domestic debt stock is made up of treasury bills and bonds, which constitute 24.7% of GDP. Other debts are made up of suppliers’ credit, which includes the CBK overdraft, performing guarantees and bank advance which make up 2.3% of GDP. This debt is excluded from the medium-term debt strategy (MTDS). 

For Kenya to address the challenges facing the revenue sector, the country needs a new income tax law. According to Wakhisi, the current law was enacted in 1975. “We have been doing a lot of patch work since then on the legislation."

He emphasized that modern tax law will bridge existing gaps and address ambiguities that limit revenue.

Dr Miriam Oiro Omolo, Executive Director at the African Policy Research Institute, reinforced the need of having a new tax law which can help the Country in using a multidisciplinary approach to solve economic problems. “Linking the National and County Fiscal Strategy 2019/20 is crucial especially including the financial outlook with respect to county government revenues, expenditures and borrowing”, she stated.

She added, since the County Financial strategy paper should be produced by February every year, this can help the national government to include the financial outlook with respect to county government revenues, expenditures and borrowing.

Unlike the previous budgets, the priorities for 2019/20 fall within the ‘Big Four agenda’. The national government is implementing policies and programmes in the following areas:  Universal health care, affordable housing, manufacturing and food security.  The ‘big four’ are also prioritized in the third medium term plan (MTP III) of Kenya Vision 2030.

Since the Budget is the most important economic policy tool for any government and reflects a government’s priorities on the economy, policy implementation and social development, Dr Omolo says that the  2019/20 financial expenditure can help Kenya achieve the expected outcome under the Big 4 agenda: Accelerated and sustained inclusive growth, increase of opportunities for productive jobs and reduction in poverty, and income inequality. 

However, for the impact of the outcomes to be achieved, there must be legal and institutional reforms across the big four sectors.  “Collaboration with the counties is key to achieving the Big Four agenda,” said Dr Omolo. She added, “Creating an enabling environment that can attract investments in the four priority sectors will be critical or else the ordinary person will continue to bear the burden of taxes.”

Attendees at the policy breakfast which attracted over 30 Business and Finance Journalists agreed that there is a lacuna when it comes to Kenya's taxation policies.  Therefore, there is a need for a stronger strategy to enhance revenue collection such as sealing tax loss loopholes and widening the tax base.

The country should adopt reduction in spending and support key sectors of the economy, especially the major income earners such as the services sector, agriculture, manufacturing and tourism among others. Further, there should be the implementation of budget monitoring reports. The Government should act on the Auditor General and Controller of Budget’s recommendations with respect to public debt by enhancing accountability in public and private sectors to free more resources to development.

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On 31st May 2019, Strathmore Business School’s Africa Media Hub in collaboration with the Business Advocacy Fund hosted a Media Policy Breakfast for Business and Finance journalists. The theme of the breakfast was “Public Finance and Revenue Performance in line with 2019-2020 Fiscal Strategy”. The speakers at the breakfast were Dr Miriam W. Oiro Omolo, Ph.D., Executive Director at the African Policy Research Institute (APRI) and Elias Wakhisi, Manager, Public Policy, Institute of Certified Public Accountants of Kenya (ICPAK).

You can download Dr Miriam W. Oiro Omolo’s presentation here.  

You can download Elias Wakhisi’s presentation here.

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Rosemary Okello-Orlale is the Director of the Africa Media Hub- Strathmore University Business School.