Kenya’s cabinet approves budgetary estimates for new fiscal year

Kenya's cabinet has recently given the green light to the budget estimates for the upcoming 2025-2026 fiscal year, totaling a substantial 4.2 trillion shillings. This budgetary decision has sparked discussions and analysis around the implications it will have on the country's economy, particularly in terms of revenue mobilization and deficit management. To shed light on the intricacies of this budget, CNBC Africa interviewed Christopher Legilisho, an Economist at Standard Bank Group, to provide insights into the key factors at play. The interview explored the potential impacts on interest rates, revenue generation, expenditure rationalization, debt management, and tax compliance strategies. One of the pivotal points of discussion was the widening fiscal deficit, expected to range between 4.7 to 5.3 percent, as a result of increased spending from the previous supplementary budget approval. However, despite the looming deficit, Legilisho expressed optimism that interest rates may not spike significantly due to the prevailing easing rate cycle. The interview also touched upon the uncertainties surrounding the funding sources for the 4.2 trillion budget, with a keen eye on revenue targets and potential tax measures to be outlined in the upcoming finance bill for 2025. Legilisho highlighted the importance of balancing expenditure rationalization with public appeasement and fiscal discipline, emphasizing the need for a cautious approach to financial management. The discussion further delved into the country's escalating domestic debt, which has surged by 51.9 percent, representing 32.9 percent of GDP. With impending debt service obligations in the medium term, Legilisho advocated for Kenya to consider an IMF program to navigate the debt challenges effectively. Such a program could offer a level of fiscal discipline, market access, and favorable borrowing rates crucial for debt management strategies. Tax compliance emerged as a critical aspect in enforcing fiscal discipline, albeit a persistent challenge for the government. Legilisho acknowledged the uphill task of widening the tax base, particularly in the informal sector where a significant portion of the working population operates. While existing tax compliance measures have shown promise in areas like pay as you earn and corporate tax, the focus remains on leveraging technology and enhancing strategies to enhance compliance levels across the board. As Kenya gears up for the new fiscal year, navigating through revenue mobilization, deficit management, debt servicing, and tax compliance will undoubtedly be key focal points for the government in maintaining economic stability and sustainable growth.