Kenya could achieve a primary surplus this fiscal year, the first in two decades, if it can hit its revenue targets, Treasury officials said.
(Bloomberg) — Kenya could achieve a primary surplus this fiscal year, the first in two decades, if it can hit its revenue targets, Treasury officials said.
The East African economy could post a primary surplus – the difference between revenue and expenditures without debt repayments – of 54.7 billion shillings ($379 million) in the fiscal period through June next year, the National Treasury’s Director of Macro and Fiscal Affairs Musa Kathanje said Friday in the capital Nairobi.
The government is ramping up revenue collection and wants to establish the optimal level of taxation that will help meet its funding objectives without distorting markets, Treasury Secretary Njuguna Ndung’u said.
“Taxes should not affect timing and the quantum of investment,” he said of the tax plans during a presentation of preliminary budget estimates for 2024-25. “This will ultimately reduce public debt and create fiscal space over the medium term to finance priority capital projects.”
With a debt to gross domestic product of 69%, the International Monetary Fund classifies Kenya’s risk of debt distress as high. The government has agreed on a five-year program with the lender to address those vulnerabilities.
Read More: World Bank Sees First Kenyan Primary Surplus After 20 Years
Achieving a primary surplus is an important debt-sustainability metric that indicates a state’s taxes are sufficient to cover recurring expenses, such as government salaries, without borrowing.
The finance ministry spent 17.7% of loan proceeds in the 2021-22 fiscal year on recurrent expenditure in breach of Kenyan law, which requires that borrowed money can only be used on development projects.
Highlights from the proposed 2024-25 budget:
- Sees budget deficit narrowing to 711.5 billion shillings in the year beginning July 2024, from an estimated 781 billion shillings this year. This is equivalent to 3.9% of GDP, compared with a projected 4.8% this year
- Plans expenditure of 4.01 trillion equivalent to 22.1% of GDP
- Projects revenue of 3.23 trillion shillings, or 17.8% of GDP
- Ordinary revenue of 2.87 trillion shillings, or 15.8% of GDP
- Net foreign financing seen at 280.8 billion shillings, or 1.5% of GDP
- Sees net domestic borrowing of 430.7 billion shillings, or 2.4% of GDP
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