The government is likely to struggle keeping the Budget deficit at the projected 7.3 percent of gross domestic product (GDP) in the coming fiscal year due to possible revenue shortfalls amid higher expenditure needs tied to the Covid-19 pandemic.
Analysts at NCBA and investment bank Genghis Capital say tax projections contained in this year’s budget remain ambitious in the face of the prevailing economic reality where there are job losses and businesses being slowed down by the Covid-19 restriction measures.
The Treasury targets total revenue and ordinary revenue of Sh1.871 trillion and Sh1.621 trillion respectively in the 2020/21 fiscal year.
“The revenue realism may be ambitious in the backdrop of Covid-19 shock. Slower consumption will have a negative knock on excise duty, VAT and import duty revenue streams, worsened business environment will be detrimental on corporate income tax and layoffs/reduced employment income will derail Paye stream,” said Genghis Capital head of research Churchill Ogutu in a budget note.
On the expenditure side, the State is likely to be forced to pump in more stimulus funds into the real economy in coming months unless the virus’ spread is quickly contained.
President Uhuru Kenyatta last month unveiled a Sh53.7 billion, eight-point economic stimulus programme, designed to tide the economy through the Covid-19 crisis.
NCBA analysts say such measures mean that there is a risk that the budget deficit could widen beyond the envisaged 7.3 percent.
“Risks to this outlook are largely to the upside given the disruptive impact of the uncertain nature of the pandemic on businesses and households. This may necessitate prolonged relief to ensure livelihoods are sustained,” said NCBA in a weekly report.
“This may see increased borrowing from the local markets given the potential shocks of second round wave of Covid-19 on the sovereigns’ financial position.”
