Jun 14, 2015
Treasury Secretary Henry Rotich presented Kenyas FY 2015/2016 Budget of Kshs 2.2 trillion to Parliament on the 11th of June 2015. Total expenditure increased by 22.7% to Kshs 2.2 trillion and is expected to be financed by Kshs 1.3 trillion of tax collections, Kshs 567 billion of borrowings (both local and foreign) as well as project grants.
As was expected, the lions share of the budget was allocated to the Social Sector, 28% of total expenditure, with the bulk being spent on education. The constant investment in education and security is important to improving the attractiveness of Kenya as an investment destination. Another large beneficiary category is the Energy, Infrastructure and ICT sector, which has been allocated 27% of the budget, with the increment primarily to road and railway construction to fund the Standard Gauge Railway. The increase in energy allocation will fund geothermal power generation, power transmission and rural electrification. We are of the view that the increased allocation to development expenditure projects will spur economic activity and improve economic growth in the medium term to long term but only if these funds are well and fully utilised.
The county governments will also get a large share of the budget, with a 25% increase in allocation to Kshs 287 billion, with Kshs 259 billion as shareable revenue. This will go a long way towards enhancing devolution in the country. However, we need to see better spending management and more allocation to development funding in counties for county allocations to have the optimal outcome.
On the budgets financing, tax revenue is expected to increase by 16.5% to Kshs 1.3 trillion in the upcoming financial year. To help improve the tax collection, KRA is in the process of digitising all tax collections and also broadening the tax base.
The 8.7% budget deficit is set to financed through both foreign financing (340.9 billion) and local domestic borrowing (219 billion).
While the ambitions and aspirations of the budget are admirable, below are some concerns to be aware of and to try and mitigate early:
Key to note from the budget is that the government is open to the deepening of the capital markets as can been seen by (i) the reversal of capital gains tax on shares, (ii) changes to RBA regulation to allow for private equity and venture capital, (iii) raising minimum capital for banks and insurance companies and giving some time for compliance.
In summary, we like the emphasis on infrastructure development, providing social services and investments in education, but we need to be disciplined and stick to the budget and be careful not to borrow excessively.