Wednesday, June 15, 2011

Budget 2011/12

The Kenyan budget for the financial year 2011/12 was read on June 8, 2011 and despite the controversies that preceded it. It was read as a budget statement as opposed to budget speech. This is after the minister ignored to present estimates of his budget 2 months before the budget as clearly spelt out in the new leviathan. The civil society went to court to block the budget on this but they were not successful. However, Members of Parliament asked for an interpretation from the chair (speaker) who ruled that the budget should be presented to the house as a budget statement.
Despite all this it is worthwhile noting that it is a first in many ways;
  • It is the first time that our budget has hit the trillion mark (1.155 trillion)
  • It is the first budget read after enactment of a new constitution
  • The budget was being read by an ICC suspect
  • This is the budget prior to a general election
The Budgets theme was ‘Building Resilience, dealing with emerging challenges-Additions to spending plans’.

Highlights of the Budget
The budget read by the finance Minister enumerated the key macro-economic indicators of the country for 2010. The country GDP growth rate stood at 5.6% in 2010 from 2.6% in 2009 and it is expected that the country will register a 5.3% (revision downwards) GDP growth rate in 2011. The population Growth rate for 2010 was 3.1% and is expected to be around the same figure in 2011. The inflation stood at 4.1% for 2010 however it is expected to rise significantly in 2011 to about 9.3%.

The explanation for a rise in GDP by almost 100% is attributed to strong performance in Agricultural sector which contributes about a quarter of the GDP and a positive showing in the industrial sector. This is in contrast in 2009 when the country was recovering from the Post Election Violence (PEV) and Agriculture registered negative growth.

The high inflation (approaching double digit) expected for 2011 is a result of high food and oil prices. In fact the monthly inflation figures released by KNBS are in the double digit. The Kenya shillings has been on an all time low against the dollar and fuel hikes have become common with prices changing on a weekly basis if NOT monthly. To add to this in the month of May motorist experienced fuel shortages when the government tried to enter into this market (Oil Market) which some say is run by cartels close to the high and mighty. 
As if this is not enough the country has had its fair share of unemployment. The exact figures are not yet made known BUT one thing is that it is a double digit figure. The budget tries to address this challenge and this being an election year the 500,000 jobs per year first sprung up in 2002 NARC manifesto continues to be used. The government is reviving it Kazi Kwa Vijana (KKV) project that will see young persons given paying internships to make them ‘employable’.

Fiscal Policy
The government resources for financial year 2011/12 spelt out show that the government is going to finance its budget from;
Revenue Sources 2011/12
The A-word (austerity) has featured in the government expenditure programme where it is rationalizing to contain expenditure growth. However, analyst are pointing out that 2012 being an election year. Kenya has a record of having expansionary expenditure and that growth has been shown to slow. However, it remains to be seen if the new constitution and on going reforms are going to put a hold on this track record.
The other problems are the high internal borrowing (11%). This might tend to exaggerate the inflation problem. However, I spotted in the dailies the Central Bank of Kenya (CBK) has been announcing 10 & 20years maturing treasury bonds to wipe of excess liquidity in the market.
The finance minister also pointed out on tax reforms (VAT reforms) this might erode the 65% component of budget based on tax revenue but have a positive impact in the medium and long term. A simplified tax system is in every ones best interest.

Sector Spending 2011/12

One of the key things that really got my eye is the proposed expenditure. As is the case the usual suspects still get their fair share however the government earned my points on allocating 5.6 Billion to the safety net. Under this it has set out Kshs 1 billion for older persons (people currently highly affected by high cost of living), Kshs 300M for Girl child and my favorite Kshs 845 M for Gunny bag grants for urban poor.
The gunny bags are going to be used in sack gardening in urban slums. These funds will scale up the Urban Food Security Program currently funded by European Commission and AFD in Urban areas of Nairobi, Mombasa and Kisumu.
The government has allocated to spend 6% of its spending on the irrigation. This has been warmly welcomed. The Agricultural Secretary Dr. Songa has noted this will go a long way in what the Ministry has been preaching, water harvesting.

Physical Infrastructure
The government is allocating a big chunk 23% same as that of Human Development on Infrastructure. It would be worth while to know who will be up-scaling/building the urban commuter railway.

Challenges Pointed
The government has been shown to have a big problem with its absorption capacity. Kwame Owino the CEO of IEA has pointed out that at the end of the financial year ministries tend to return monies to the ex-chequer (Treasury) due to low absorption capacity in line Ministries.

It is now emerging that 4.2 billion was misused or ended up to its unintended purposes in the Ministry of Education. This had long been flagged by donor agencies who partnered with government to achieve this noble goal of educating the young citizenry through the Free Primary Education (FPE).

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