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Kenya’s Budget Gap Widens by 28%, Raising Concerns About Fiscal Strain

Kenya’s Budget Gap Widens by 28%, Raising Concerns About Fiscal Strain
  • PublishedSeptember 9, 2024

Kenya’s budget deficit has widened by 28% just two months into the fiscal year, reaching 767 billion shillings ($5.95 billion), Bloomberg reports, citing Treasury Secretary John Mbadi.

This alarming increase comes as the finance ministry struggles to stabilize the country’s strained public finances

The revised budget forecast, announced at a budget-preparation event in Nairobi, was driven by the government’s withdrawal of contentious tax measures in response to deadly anti-government protests. These measures were expected to raise $2.7 billion in revenue.

“The government is operating under a constrained fiscal environment,” said Mbadi, who took over as Treasury head last month. “We are barely managing the 2024-25 budget.”

The widening gap adds further pressure to Kenya’s already precarious financial situation. The nation is under pressure from the International Monetary Fund (IMF) to shore up tax collection and reduce borrowing under a $3.6 billion funding program agreed in 2021.

Kenya’s financial woes are compounded by several factors:

• Underperforming Revenue Collection: Tax collection has fallen short of projections, straining the government’s ability to meet its financial obligations.

• Piling Debt and Loan Repayments: The country is grappling with increasing debt repayments, further squeezing its budget.

• Pending Bills and Carryovers: Unpaid bills from the previous fiscal year, along with expenditure carryovers, are putting a strain on limited resources.

The situation has also impacted regional administrations, with the central government failing to remit any funding to the nation’s 47 counties this fiscal year. Mbadi warned that these administrations could “grind to a halt” without adequate funding.

Adding to the challenges, Kenyan courts are currently considering the legality of another set of taxes, potentially jeopardizing $1.7 billion in tax income.

Despite the setbacks, Mbadi has stated that the government will refine and reintroduce some of the less contentious tax measures that were withdrawn earlier.

The worsening budget deficit has led to concerns about Kenya’s fiscal health. Three major credit-rating companies have downgraded the country’s debt to junk territory this year, citing the government’s declining revenue-raising capacity.