The National Treasury had initially given the taxman a target of Sh1.8 trillion, but KRA, which has perennially been missing its target, shot even wider in the last financial year as Covid-19 devastated the economy.
As a result, the National Treasury borrowed Sh786.8 billion to plug the shortfall in tax revenue, pushing the country further into debt distress.
This fiscal deficit – the difference between a country’s spending and tax revenues – is the deepest budget hole since June 2017 when the government borrowed Sh788 billion to finance mega infrastructural projects, including the Standard Gauge Railway (SGR).
This will push the country’s total debt to around Sh6.7 trillion.
The National Treasury’s austerity plans have been disrupted by the Covid-19 pandemic, which has crippled economic activities with tax collection dwindling as businesses shut down and workers sent home.
The government spent Sh2.53 trillion with most of the money going to recurrent expenditure including salaries and allowances, interest payments, pension, maintenance, hospitality, and advertising.
However, the tax collection shortfall reduces to Sh12 billion when compared to revised target of Sh1.46 trillion.
With the negative effects of Covid-19 still raging, tax collection is expected to be hit even harder in the current financial year.
The National Treasury Cabinet Secretary was forced to revise the budget following the adverse effects of the pandemic that saw the State grant some tax relief to consumers.
The IMF has projected that the economy will plunge into recession as it reels from the post-Covid-19 effects.
However, other forecasters have been more optimistic, with National Treasury projecting the economy to expand by around 2.5 per cent.
In the financial year ending June 2020, the government spent Sh1 trillion on recurrent expenditure, Sh778.8 billion to pay debts, and Sh385.7 billion on development.
Counties received Sh315.9 billion from the Exchequer while salaries to constitutional officer holders took up Sh3.3 billion against a budget of Sh4.6 billion.
The shortfall in salary expenditure by constitutional officer holders is largely due to the salary cuts they took to help in the fight against Covid-19. Central Bank of Kenya (CBK) Governor Patrick Njoroge said the economy was expected to bounce back in May after a poor period in April when it was devastated by the stringent containment measures to curb the spread of coronavirus.
“GDP across the advanced economies contracted sharply in the first quarter, mainly reflecting widespread business closures, severe disruptions to trade and supply chains and the collapse in global travel,” said Monetary Policy Committee in April.
“The growth is expected to worsen further in the second quarter, with the imposition of more stringent containment measures.”
Thousands of businesses have closed shop, leaving millions without a source of livelihood as the government continues to implement social distance rules.
Rules that have reduced economic activities include a dusk-to-dawn curfew, ban on social and political gatherings and international passenger flights. The borrowing is not only due to increased Covid-19-related expenditure, but also poor tax collection, including the foregoing of at least Sh172 billion in tax reliefs aimed at leaving consumers and businesses with more disposable income to navigate through this period.
By end of the financial year, the National Treasury had borrowed a record Sh441.8 billion from the domestic market. In the 2018/19 financial year, net domestic borrowing was Sh306.6 billion.
External borrowing, on the other hand, is set to hit Sh3.3 trillion by the end of this month when government fiscal year closes, with the Treasury increasing the tally by Sh299.7 billion.
But the budget deficit is expected to widen further in the current fiscal year, with the National Government expected to borrow Sh840 billion in the 12 months to June 2021.
More than half of these loans will come from local investors, with most of them already showing eagerness to put their money in government securities.
Treasury bills and bonds that CBK has recently auctioned have been oversubscribed.
Luckily, the government has been getting the money at a lower rate.
The Treasury will hope that interests rates, which have mostly been helped by the lowering of CBK’s benchmark index, will remain low into the next fiscal year.
The increased borrowing is due to the need for the government to act fast by propping up businesses and help workers get back their livelihoods. Under the prevailing conditions, the government will struggle to collect taxes.
It expects to collect Sh1.6 trillion in taxes in the next fiscal year.
More than half of this money (Sh493.4 billion) will come from local investors and Sh328 billion externally; the rest will be borrowed from foreign financiers.
Although it is an increase from the Sh571 billion that the Treasury had initially planned to borrow for the 2020/21 financial year, debt-shaming critics have spared the Treasury the tongue-lashing.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.