Inside Ukur Yatani’s Sh3.2 tr complicated ‘Corona Budget’

Fred Aminga @faminga

National Treasury Cabinet Secretary Utur Yatani must dig deep into his 27 years of experience in public administration, diplomacy and governance to midwife what is perhaps Kenya’s most complicated budget yet.

The 2020/21 Budget, to be read today, will be keenly followed by Kenyans because it is expected to speak directly to the country’s well-being in an economy that has been ravaged by floods, a historic locust invasion and an ongoing coronavirus pandemic which has ravaged almost all key sectors.

To sanitise the economy, Yatani proposes a Sh3.2 trillion budget which includes Sh441 billion redemption for maturing bonds, of which Parliament has approved Sh1.88 trillion from the Consolidated Fund to meet expenditure up to June 30, 2021, amid mounting debt and dwindling tax collections.

Fighting virus

To deal directly with the Covid-19 pandemic which has affected the whole world, the Health ministry has been allocated Sh117.6 billion to help vaccinate the economy back to business.

However, most of the Covid-19 funds have been ring-fenced in what is broadly described as the Emergency Response Fund under President Uhuru Kenyatta’s Sh53.7 billion eight-point stimulus programme focusing on infrastructure, education, small and medium enterprises, health, agriculture, tourism and manufacturing, to help jump start the economy.

The Budget will be presented to Kenyans, who are maintaining social distancing in keeping with health protocols to stop the spread of the virus, putting a unique perspective to the estimates which must ensure the ongoing health crisis does not grow into an economic hazard.

To ensure teaching goes on in the partial lockdown, the Teachers Service Commission, the largest employer, has gobbled up the lion’s share of the budgetary allocations at Sh266.1 billion or 15.0 per cent of the budget to the national government.

The State Department of Infrastructure takes Sh189.6 billion, which, however, is Sh50.6 billion less than last year’s allocation.

The State Department for Interior will get Sh131.7 billion, while the State Department for Social Protection, Pensions and senior citizens affairs will gobble up Sh33.6 billion to ensure vulnerable Kenyans get access to food and other utilities during this tough period.

The Budget is expected to cure disruptions in the hospitality industry, the transport sector and ensure SMEs survive this period and prepare for a post-pandemic period.

It will also give confidence to international trade which has evaporated with investment on their knees amid reduced income, job layoffs and destitution.

In the short-term, the stimulus package is expected to hire 200,000 youth to clean towns, 10,000 teachers, and 5,000 health workers to help fight the pandemic.

The State had also promised to engage 1,000 ICT interns to support digital learning, 5,500 community scouts under the Kenya Wildlife Service and thousands of casual labourers to rehabilitate roads.

The soft-spoken Yatani, who took office from former Treasury CS Henry Rotich, must, however, chart his own path, taking care of the debt situation with economists urging him to maintain sanity as the outstanding loans hit Sh6.2 trillion.

He must also ensure the money goes to intended projects otherwise the stimulus packages will flop, sinking the economy into further crisis.

Head of Research at Genghis Capital Churchill Ogutu, estimates that public debt is set to rise to Sh905 billion from Sh769 billion in the current fiscal year which means that “for every Sh100 in revenue, public debt will consume up to Sh55 and this is up from Sh39 at the start of the current financial year”.

“This, though, is to remain at elevated levels in light of the expected total debt accumulation of Sh823.4 billion,” he said.

But the bad news for Treasury is that the next two years are in close proximity of major political events in the country, namely, a looming referendum which will be closely followed by the 2022 general elections.

“It appears this referendum will be conducted in the 2020/21 financial year and it must feature in the Budget because it is a major occasion in the country.

It will also not make sense to have it in an election year,” said Michael Mburugu, a partner at consulting firm PKF.

Mburugu, who termed Yatani’s reign as “the worst time to be Treasury CS”, said since the economy is depressed, this move might not be popular among Kenyans, especially coming during a stressful Covid-19 period.

“This will strain the economy in terms of fiscal sustainability, taxes and borrowing from lenders,” he said.

Loan restructuring

With levels of unemployment increasing every day, and as the country gears up for the worst in case of a full-blown Covid-19 onslaught, the estimates must make sense.

“When people are thinking of food and hospitalisation in case of an outbreak, the outline of the expenditure will be keenly monitored,” he said.

Mburugu expects Yatani to restructure loans which are due with close to Sh905 billion expected to be paid this financial year.

“If I were the CS I would restructure the loans to focus on healthcare and feeding the people,” he said.

Francis Kamau, a tax partner at Ernst and Young, says revenue targets are over-ambitious and expects the taxman to collect Sh1 trillion considering that the Kenya Revenue Authority has not met revenue targets in the past two years.

He singled out customs duty collections, Pay as You Earn (PAYE), corporation tax, and VAT as some of the factors that will make it “extremely difficult” for KRA to meet its revenue targets.

“Businesses are going to report losses, and those businesses will not be able to pay taxes, from a corporation tax perspective. What I am trying to say is, all tax segments will be affected,” said Kamau.

Nikhil Hira, a tax expert at Bowmans law firm, also warned the proposed revenue targets were almost impossible to achieve due to the shocks of the Covid-19 pandemic.

“If you look at April 2020 collections and compare with April 2019, they were Sh20 billion lower. That’s the first time in a long time I have seen the year-on-year collections drop,” said Hira.