Highlights of the first quarterly economic and budgetary review report in the 2020/21 FY

November 20, 2020 - 5 minutes read

This week the Government of Kenya published the first Quarterly Economic and Budgetary Review Report. The publication of the report is premised on Section 83 of the Public Finance Management Act, 2012 which states:

An accounting officer for a national government entity shall prepare a report for each quarter of the financial year in respect of the entity.
Not later than forty-five days after the end of each quarter, the National Treasury shall—

  • consolidate the quarterly reports and submit them to the National Assembly and a copy of the reports to the Controller of Budget, Auditor General and the Commission on Revenue Allocation; and
  • Publish and publicize the reports.

In summary, the report outlines of the country’s economic performance. The performance of most sectors contracted as a result of the Covid-19 pandemic. However, the economy was supported by improved performance of agriculture, forestry, fishing activities, health services, mining and quarrying activities.

Additionally, the Government took measures (adjustments to both monetary and fiscal policies) to cushion industries and citizenry from the adverse impact of the Pandemic, these same measures have been at a cost to revenue collection which will adversely impact growth and development. For instance, exemption from PAYE persons earning Ksh 24,000 and below; reduction in corporate and personal income tax rate from 30 % to 25 %; reducing the VAT rate from 16 % to 14 % and reducing turnover tax rate from 3 % to 1 %- which have cost the exchequer Ksh 172.0 billion in revenue foregone.


As highlighted in Vellum feature of 6th November, 2020 on the Tax Summit, whereas revenue performance in the current financial year (2020/2021) is still unknown, it is expected to significantly reduce having already experience a deficit of Ksh 5.2 billion in the first quarter with May being the worst hit month having suffered a 33.8 percent decline.

However, on a more positive note, as a result of prudent monetary policies, inflation rate remained within Government target range. Inflation rate in Kenya stood 4.2 percent in September 2020 up from 3.8 percent in September 2019. This brought the overall annual average inflation rate to 5.3 percent in September 2020 compared to 5.2 percent recorded in the same period in 2019 which is within the Government target range of 5+/-2.5 percent. This compared to other African economies such as Rwanda whose inflation stood at 4.5 percent, Rwanda at 10.8 percent, Nigeria at 13.7 percent and Ethiopia at 18.7 percent.

Herein below is a summary of the key themes, insights and figures for business from the report:


Economic growth
In 2020, the Kenyan economy has been adversely affected by the outbreak of Covid19 Pandemic and the swift containment measures, which have not only disrupted normal life and livelihoods, but also businesses and economic activities. As a result, the economy grew by 4.9 percent in the first quarter of 2020 compared to a growth of 5.5 percent in the first quarter of 2019. The economy further contracted by 5.7 percent in quarter two of 2020 from a growth of 5.3 percent in the same quarter in 2019. The performance of most sectors of the economy contracted in the second quarter of 2020. However, the economy was supported by improved performance of Agriculture, Forestry and Fishing activities, Health Services and Mining and Quarrying activities.

Stable prices
Year-on-year overall inflation rate remained low, stable and within the Government target range of 5+/-2.5 percent since the end of 2017. This demonstrates prudent monetary policies. The inflation rate was at 4.2 percent in September 2020 up from 3.8 percent in September 2019. This was supported by a reduction in food prices particularly cabbages, loose maize grain, carrots, oranges and Irish potatoes.

Interest Rates
Short-term interest rates remained fairly low and stable. The Central Bank Rate was retained at 7.00 percent on September 29, 2020 same as in April 2020 to signal lower lending. The interbank rate remained low at 3.0 percent in September 2020 from 6.6 percent in September 2019 in line with the easing of the monetary policy and adequate liquidity in the money market.

Money and Credit
Growth in broad money supply, M3, improved to 10.7 percent in the year to September 2020 compared to a growth of 6.5 percent in the year to September 2019.The improved growth in M3 was attributed to an increase in the Net Domestic Assets particularly improvement in credit flows to the government and the private sector.

Balance of Payments
The overall balance of payments position improved to a surplus of US$ 1,217.2 million (1.2 percent of GDP) in the year to September 2020 from a deficit of US$ 1,058 million (1.1 percent of GDP) in the year to September 2019. This was due to an improvement in the current account balance as net imports declined and exports improved.

Foreign Exchange Reserves
The banking system’s foreign exchange holdings remained strong at US$ 12,585.0 million in September 2020 down from US$ 13,083.3 million in September 2019. The official foreign exchange reserves held by the Central Bank declined to US$ 8,765.1million (5.4 months of import cover) in September 2020 compared with US$ 9,441.6 million (5.8 months of import cover) in September 2019.

Capital Markets
Activity in the capital markets declined in September 2020 compared to September 2019, with equity share prices declining as shown by the NSE 20 Share Index. The NSE 20 Share Index was at 1,942 points by end of September 2020 compared to 2,432 points by end September 2019. Consequently, market capitalization declined from KSh. 2,190 billion to KSh. 2,148 billion over the same period.

Revenue Collection
The National Government’s cumulative revenue collection including A-I-A for the period between July 2020-September 2020 amounted to KSh. 378.7 billion (3.4 percent of GDP) against a target of KSh. 428.9 billion. The revenue was below target by KSh. 50.2 billion mainly due to underperformance in Pay As You Earn, Value Added Taxes (both domestic and imports), Excise duty, Import duty and the ministerial A-I-A.

Expenditure and Net Lending
The total expenditure and net lending inclusive of transfers to County Governments for the period ending 30th September, 2020 amounted to KSh. 510.4 billion, against a target of KSh. 565.3 billion. The resultant under expenditure of KSh. 54.9 billion is mainly attributed to lower absorption recorded in both recurrent and development expenditures by the National Government and delayed disbursements to County Governments as a result of the protracted debate at the Senate over the county revenue allocation formula.

Guaranteed Debt
The government did not service any guaranteed debt on behalf of Parastatals during the period under review. Guaranteed debt to parastatals with liquidity problems had been fully serviced.

Fiscal Balance

The fiscal balance excluding grants (on a commitment basis) amounted to a deficit of KSh. 131.7 billion (1.2 percent of GDP), as at the end of September, 2020.

External Financing
The Net Foreign Financing amounted to a net repayment of KSh. 22.5 billion (-0.2 percent of the GDP) during the period ending 30th September, 2020.

Net Domestic Borrowing
Net domestic financing amounted to a net borrowing of KSh. 152.4 billion (1.4 percent of GDP) in the period ending 30th September, 2020.

Domestic Debt Stock
Total gross domestic debt stock increased by 21.2 percent from KSh. 2,851.6 billion as at end of September, 2019 to KSh. 3,457.1 billion by the end of September, 2020.

External Debt Stock
The total external debt stock, including the International Sovereign Bond, stood at KSh. 3,663.5 billion by the end of September, 2020. The debt stock comprised of multilateral debt (38.8 percent), commercial debt (30.6 percent), bilateral debt (30.1 percent), and suppliers’ credit (0.5 percent).

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