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The East African : January 13th 2014
4 ERA OF BELT TIGHTENING Tougher times ahead for Kenyans as govt misses The sho≥tfall in ≥evenue collection is att≥ibuted to a slowdown in economic activity in 2013 By CHRISTINE MUNGAI The EastAfrican K enya missed its tax revenue target for the first half of the financial year 2013/14, casting doubt on its ability to finance ambitious projects slated for this year. The country is facing addi- tional budgetary needs arising from the management of the devolved system of government as well as a surging wage bill. The Kenya Revenue Authority (KRA) said it collected Ksh471 billion ($5.5 billion) between June and December 2013, falling short of the Ksh486 billion ($5.7 billion) it had targeted, a shortfall of Ksh16 billion ($188 million). The shortfall is attributed to a slowdown in economic activity as 2013 came to a close with relatively lower than expected revenue collections in October and November. “Despite less than satisfactory performance in October and November 2013, we ended the first half with cumulative growth standing at 23.7 per cent, largely driven by robust growth in the first quarter [June to September] and December 2013 respectively,” said KRA in an update by Commissioner General John Njiraini seen by The EastAfrican. KRA is expected to offi- “Managing the devolved government remains a big challenge.” National Treasury Cabinet Secretary Henry Rotich cially release the performance results this week. The shortfall, economists said, ushers in an era of belttightening even as KRA engages in more aggressive tax collection. KRA is, for example, set to intensify the audit of large taxpayers to ensure compliance with the value added tax (VAT), excise and Customs taxes. The Treasury said last month that it was targeting the 50 largest taxpayers, long suspected of evasion of VAT. The Treasury may be forced to borrow more following the revenue shortfall, testing its commitments to set credit limits. The country’s economy experienced a slump between July and October last year, slowing to 4.4 per cent compared with 4.5 per cent during the same period in 2012, according to data from the Kenya National Bureau of Statistics (KNBS). This was particularly acute in the agricultural sector, with coffee production declining by 15.9 per cent during the three months, and low international prices for both leading exports — coffee and tea. “We are broadly okay in terms of revenue collection compared with last year especially due to a number of reforms touching on VAT and Customs management,” said National Treasury Cabinet Secretary Henry Rotich on Friday. “We see economic activity picking up in the first and second quarter of this year. Managing the devolved government remains a big challenge especially in ensuring they absorb the budgeted funds and tame the wage bill.” The poor state of the country’s finances came to light early last week when the government admitted it has no financial room to manoeuvre in case of external shocks, and asked the International Monetary Fund for an additional line of credit to “serve as an insurance policy in the event of unexpected shocks,” which Kenya “remains vulnerable to,” said a brief by Mr Rotich issued in preparation for IMF managing director Christine Lagarde’s visit to Kenya last week. The Central Bank of Kenya had projected that growth in the last quarter of 2013 would show some resilience on account of enhanced confidence with an expected increase in foreign direct investments, macroeconomic stability, an expected pick-up in credit growth, and prospects for increased regional trade. The CBK Monetary Policy Committee (MPC) holds its rate-setting meeting on Tuesday this coming week to review the economy. “There are no strong under- lying inflation pressures. We don’t see particularly strong inflation pressures to necessitate action from the Central Bank,” said Peter Anderson, the chief investment officer at Old Mutual Asset Managers. “Quarter two (April to June) will be the quarter where the base effects are a lot higher — that means inflation will naturally pick up, for a couple of reasons: One is that last year’s inflation was low so it will pick up, and two, the currency was very strong last year. It’s a numbers game so we should not be shocked to see in- The EastAfrican NEWS JANUARY 11-17,2014 Kenya’s Commissioner General John Njiraini. Picture: File flation creeping up in quarter two,” he added. A slow uptake of govern- ment expenditure, insecurity, and slow recovery of the global economy have been cited as the main risks to growth this year. A government audit released on Tuesday revealed that despite the fiscal challenges the central government was facing, more than half of the counties failed to spend over Ksh27 billion ($317 million) allocated to them during their first quarter of financial year 2013/14 ending September 2013. Controller of Budget Agnes Odhiambo said counties only spent Ksh13 billion ($153 billion) out of the Ksh40 billion ($470 million) that was set aside for them in the period — mostly on recurrent expenses such as salaries — and none of the 47 counties met the first-quarter absorption target of 25 per cent. A large number of county budgets were riddled with deficits, unrealistic estimates, or allocations for unauthorised items, she said. The Jubilee administration has announced a raft of megainfrastructure projects expected to take off in the coming months, the latest of which is the Ksh250 billion ($2.9 billion) Galana/Kalalu irrigation project launched on Thursday by President Uhuru Kenyatta. The project, which will put one million acres — an area equivalent to one-sixth of Rwanda — under irrigation in south-eastern Kenya to boost food security, making it one of the biggest irrigation projects in the region. According to Agriculture Source: KMBS Cabinet Secretary Felix Koskei, the ambitious plan is “purely government-funded” at the mo- ment, though there is a possibility of bringing external financiers on board in the future. But devolution is the biggest project overall, which is posing “significant fiscal challenges against the backdrop of high expectations among Kenyans,” said Mr Rotich. “Counties have to go slow on recruitments to manage the wage bill. We need to be tactical on how we handle these recurrent expenditures,” he said. During last Monday’s meet- ing with Ms Lagarde, Mr Rotich was less optimistic about Kenya’s growth prospects than mid last year when he took charge of the Treasury docket, saying that the economy would expand by five per cent in the coming year, a reduction from the 5.5 to six per cent he announced less than a year ago. He however did not give any reasons for the downgrade. The World Bank gives a similarly modest projection of 5.1 per cent growth in 2014, in the latest Kenya Economic Update published in December. New VAT tax laws — strongly supported by the IMF — that came into force last September, have not been enough, it seems, to deliver the government’s Ksh1.6 trillion ($18 billion) budget for this financial year, despite a rise in the price of most previously-exempt essential commodities, such as electricity, cooking gas and books.
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