This archive report was first published on 17 June 2020.
On June 17, 2020, Cabinet Minister Ukur Yatani presented the 2020 budget speech, which was expected to address the economic impact of the COVID-19 pandemic. However, the speech failed to provide a credible assessment of the economic contraction and instead focused on allocating billions of shillings to politically-correct projects.
The budget speech allocated Sh23 billion to pay for pending bills and VAT refunds, Sh34 billion for irrigation projects, Sh50 billion for universal health coverage programme, and Sh177 billion for security agencies. However, the allocation of these funds raises questions about where the money will come from, given the poor revenue trends and the impact of the pandemic on revenue collections.
The budget speech also projected a revenue target of Sh1.6 trillion, which is the same target for last year that was not achieved. This exaggeration of the GDP growth rate leads to exaggerated revenue targets, resulting in an unsustainable budget deficit of Sh840 billion. The domestic borrowing requirement is projected at Sh347 billion.
With the government facing cash flow problems and revenue shortfalls, it is expected that there will be delays in exchequer releases, especially by County governments. Multiple supplementary bills containing major re-allocations and cuts on the original budget are also expected.
The COVID-19 pandemic has led to a sharp fall in revenues and exports, and even with low oil prices, the current account will widen. The risk of debt distress is also high, with the IMF moving Kenya's risk for debt distress from 'moderate' to 'high'. Access to international capital markets will remain constrained until the pandemic goes away.
