Recurrent expenditure to go up in 2021 budget

Government’s recurrent expenditure is set to increase at an even higher rate than the development expenditure going by the recently released National Treasury draft budget policy statement for 2021.

The statement was released late January in line with the process of budget preparation that stresses on public participation.

According to the statement, the recurrent expenditure will increase by 6.9% to Sh2tn from Sh1.8tn. The development expenditure on the other hand is set to decline by 4.8% to Sh611b from Sh641.9b for the FT’2020/21 budget.

other key take-outs from the statement are, among others, that the budget deficoit is projected to decline in line with the IMF’s recommendation, in a bid to reduce the country’s public debt requirements. The budget deficit will decline to Sh983.7b (7.9% of GDP) from the projected Sh1, 048.9b (9.4% of GDP) in the FY 2020/21.

Total Revenue is projected to increase by 8.2% to Sh2tn from Sh1.9tn in the year under review, with measures already in place to work towards increasing the amount of revenue collected in the next fiscal year.

The total borrowing requirement is expected to decrease by 6.2% to Sh937.7b from Sh1, 002.2bfor the FY 2020/21, in a bid to reduce Kenya’s public debt burden which is estimated at 69.6% of GDP as of December 2020.

Lastly, the debt financing of the 2021/22 budget is estimated to consist of 37% foreign debt and 63% domestic debt, which is a slight shift from heavily relying on foreign debt i.e. 43% foreign and 57% domestic for FY’ 2020/21.

The FY’2021/2022 BPS for the next financial year’s budget, accord to Cytonn Investment’s analysis, is projected to be expansionary as it is expected to steer the country out of the pandemic-driven economic downturn. The budget is however hinged on the premises that the Government shall meet the revenue collection targets.  

It would be, however, important for the Government to factor in the fact that economic recovery is still uncertain. The statement has indicated an increase in government expenditure to key development areas, more so, an increase in allocation to county Governments which will help push key development agendas.

The proposed budget is also set to have a deficit that will be met through a mix of domestic and foreign borrowing, which will reach Sh937.6b with a risk of an even larger figure if the economy does not recover and we result in a revenue collection shortfall.

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