KenyaMacroeconomic ViewsStrategySub-Saharan Africa

12 July 2022

Kenya’s FY2023 budget review: The next regime’s poisoned chalice

In brief

  • The next regime will undoubtedly face a challenging task navigating the fiscal landscape, as it assumes office after the August general elections.
  • The international bonds market remains inaccessible, albeit temporarily, and the expected alternative syndicated loan issue did not materialize in FY2022 (FY2021/2022). The lower budget execution at the tail end of FY2022, supplementary budgets notwithstanding, gave some fiscal wiggle room.
  • But the harsh reality is that syndicated loan issuance, though a stop-gap measure, is not the ultimate panacea. Rate normalising implies further lift-off in the benchmark SOFR (Secured Overnight Facility Rate), which means relatively higher service costs as payments come due.
  • Our assessments of the two leading Presidential contenders’ manifestos leaves us with a sense that expenditures will have further upward tilt.
  • Deputy President Dr. William Ruto’s Kenya Kwanza manifesto has a costing to the various funds intended to be implemented and run until FY2027 budget. That said, we are sceptical on the realisation of the target financing. On the other hand, Rt Hon. Raila Odinga’s Azimio la Umoja manifesto is broadly vague on financing of the coalition’s pet projects.
  • If we think of presidential manifestos as butterflies that cause storms in the future, the elephant in the room presently is the fuel subsidy. The can has been kicked far down the road and it will be the next regime’s greatest headache.
  • The manifestos are salient with ‘widening of the tax base’ but light on the how-to. This is compounded by the policy inertia as seen in the delay in the rollout of the Medium-Term Revenue Strategy and the launch of the National Tax Policy and pose tail risks to achieving FY2023 revenue targets.