Finance Bill 2024: Kenya Treasury raises borrowing target to Sh597 billion

The government has raised its borrowing target for the fiscal year starting in July to $597 billion, just hours before National Treasury Cabinet Secretary Njuguna Ndungu reads his budget speech.

This was an increase of $82.3 billion from a deficit of $514.7 billion that Prof Ndung had previously presented to the National Assembly, an indication that the tax collection target would be reduced accordingly.

If the tax collection target is not reduced, the expenditure target of Sh2.95 trillion will be pushed up.

In a cabinet dispatch released on Thursday, the government said the reduction was in line with President William Ruto’s aim to reduce the country’s debt vulnerabilities by increasing tax collection while cutting spending, or what is known as fiscal consolidation.

In line with the administration’s fiscal consolidation strategy, which aims to reduce government borrowing, and in pursuit of the aspiration to achieve a balanced budget by 2027, the proposed budget consolidates these efforts by reducing the budget deficit by nearly 50 per cent, says the dispatch.

This has been achieved by reducing the deficit from 1 trillion in the 2021/22 financial year, 925 billion dollars in the 2023/24 financial year to 597 billion dollars in the 2024/25 financial year, the communique said.

A budget deficit of $514.7 billion was quite ambitious, considering that government borrowing in recent times has tended to exceed $700 billion.

Kenyans will also have to wait for Prof Ndungus’ speech to know what the government expects to borrow from domestic and foreign creditors.

With a budget deficit of $514.7 billion, the Treasury expected to borrow $256.8 billion from abroad and $257.9 billion from the domestic market.

Appearing before the National Assemblies Finance Committee, Chief Secretary to the National Treasury Chris Kiptoo defended the additional taxes and an expanded tax base, arguing that Kenya’s debt situation will turn for the worse in the medium term.

Our capacity to carry more debt is not sustainable, so we need to increase revenue and cut spending. Any further accumulation of debt means we will not have fiscal space, said Dr Kiptoo.

The need to reduce Kenya’s debt appetite is part of the program the country has with the International Monetary Fund (IMF), even as it tries to narrow the budget hole through increased domestic revenue mobilisation.

Apart from increasing tax collection, Dr Ruto’s government is also aiming to increase the collection of fees and fines from ministries, departments and agencies in the next budget.

In order to collect the additional taxes, the Treasury has come up with various controversial changes through the Finance Bill 2024.

Most Kenyans who made their submissions to the Finance Committee are against some of the changes.

These proposals, including a 2.5 percent car tax, 16 percent value-added tax (VAT) on banking services and a new eco-tax, have sparked a firestorm from the business community, consumers, NGOs and churches. .

There is also a proposal to impose VAT on bread and a 25 percent excise tax on crude and refined vegetable oils.

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