Kenya’s bid to bolster its Treasury and ease a cash crunch may instead hit East Africa’s largest economy with a slowdown in job creation.
The central government and county authorities were yet to pay suppliers and contractors at least 172 billion shillings ($1.7 billion) as of June, with amounts due from national ministries, departments and agencies almost double from a year earlier. Additionally, business cash-flows are suffering from the state providing only about half of the money required for tax refunds every month.
“This has led to negative impact on the economy, including less than optimal levels of employment and escalation of poverty,” acting Treasury Secretary Ukur Yatani said from the capital, Nairobi. “Cases of individuals and firms experiencing unmet financial obligations including failure to repay loans are widespread.”
The World Bank in October said Kenya’s unemployment rate was around 11.4%, compared with the government’s 2015-16 estimate of 7.4%.
Kenya’s economic expansion will probably slow to 5.8% this year from 6.3% in 2018, according to the World Bank, missing growth-targets for the fourth time in five years. That’s partly because under-performing revenue is making it difficult to fund President Uhuru Kenyatta’s Big Four Agenda aimed at boosting manufacturing, health care, housing and farming and help create one million jobs annually.
The difficulty in paying suppliers and settling tax refunds reflects a cash shortage that fiscal authorities are struggling to manage with measures that include asking state companies to remit earnings and increasing state borrowing limits.
“Private-sector activity, which is the main employer, has slowed remarkably,” said Faith Atiti, a senior economist at Nairobi-based NCBA Bank Kenya Ltd. “Fixed-capital formation in the area has literally stunted if not contracted.”
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Recent fiscal policy highlights:
- The National Treasury directed all state companies to remit earnings, which they previously retained and spent partly on developing assets and buying government securities. Yatani wants that money back to bolster funding for priority projects. He expects to receive 78.7 billion shillings from the corporations this fiscal year.
- Lawmakers approved legislation Wednesday that requires the national and county governments to hold accounts with the central bank, from where payments will be made. They are preparing additional legislation demanding the same of ministries, departments and state companies.
- Last week, the Treasury proposed an almost 3% increase in the 2019-20 spending plans to 3.13 trillion shillings to continue investing in Kenyatta’s priority projects. Authorities consequently raised the period’s budget-gap forecast to 6.3% of gross domestic product to take into account additional borrowing and lower revenue.
- Yatani told lawmakers on Nov. 19 that the Treasury cut this fiscal year’s tax-collection target by 108.7 billion shillings. Kenya will spend 696.6 billion shillings, equivalent to 39% of the revenue target, on servicing debt in the year through June.
- In October, the Treasury set a new debt limit of 9 trillion shillings, effectively increasing room for more borrowing to help plug the budget gap.
- This week, the Treasury announced additional measures to increase borrowing on concessional terms after a foray into pricier Eurobonds and syndicated loans took it closer to debt distress. The International Monetary Fund estimates Kenya’s debt this year at almost 60% of gross domestic product.
©2019 Bloomberg L.P.
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