Kenya Kwanza’s First Budget: Tough choices towards recovery plan, stability and growth.

  • 19 Jun 2023
  • 4 Mins Read
  • 〜 by James Ngunjiri

The first budget of President William Ruto’s administration, geared towards an economic turnaround and inclusive growth, came against a background of a challenging domestic and external environment.

Over the past year, the country has suffered a series of devastating negative and persistent shocks that include the worst drought in decades as well as the adverse spillovers from the conflict in Eastern Europe and tighter global financial market conditions.

The combination of all these negative and continuing shocks is what the Cabinet Secretary for the National Treasury and Economic Planning, Prof. Njuguna Ndung’u, described as a perfect storm that has confronted the new administration.

“The extreme climate change events have emerged as key drivers of food insecurity and increased cost of living. Indeed, our people are currently confronted with increasingly higher prices of basic commodities, especially food, energy and transport. This calls for urgent and decisive interventions, especially on our supply side response,” said Prof. Ndung’u.

During the campaigns, President Ruto, then the Kenya Kwanza presidential candidate unveiled a five-point manifesto ahead of the August 9 polls dubbed ‘The Plan’ saying the country’s economic challenges required immediate attention and one of his priorities as president was to revive the economy in a post-Covid era.

According to ‘The Plan’, the five sectors earmarked to have the largest impact and linkages to the economy were – Agriculture transformation and inclusive growth, Transforming the Micro, Small and Medium Enterprise (MSMEs), Housing and Settlement, Affordable healthcare to all, and Digital superhighway and creative economy.

Dr Ruto had said he would make a decisive break from the business-as-usual economic policies and carry out bold economic reforms in a coherent fashion, to accelerate job creation and leave no one behind in the empowerment process.

Kenyans have been raising concerns about the high cost of living, high levels of unemployment among the youth, high tax burden, wastage of public resources, and high public debt burden.

While presenting the budget policy highlights and revenue-raising measures for the financial year 2023/24 on Thursday afternoon, Prof. Ndung’u said having listened carefully to concerns from the public and taking cognisance of the socio-economic and environmental challenges facing the country, the budget policy highlights sought to provide solutions to the said concerns as the government works towards accelerating economic recovery.

The Kenya Kwanza manifesto prioritized agriculture, noting that the administration would implement significant changes in the agricultural sector as well as food production, including rigorous price restrictions and the provision of farming equipment.  

The new government even pledged to increase the productivity of important food chains and through the supported programmes in cereal and oil crops, it would reduce dependency on essential food imports by 30 percent. It also said it would prioritise the nationalisation of maize, rice, wheat and rearing beef and dairy animals.

During the budget presentation, in order to improve agricultural productivity over the medium term, the Treasury CS proposed access to credit for working capital to farmers through cooperatives, deployment of modern agricultural risks management instruments that guarantee minimum returns, input finance and intensive agricultural extension support projects, enhanced productivity of key value chains, reduction of dependence on basic food imports by 30 percent, and revamping underperforming and collapsed export crops while expanding emerging ones.

On health, Kenya Kwanza during campaigns had committed to ensuring it creates a system of Universal Health Coverage (UHC) that would be based on primary healthcare that is fully subsidised by the government and includes preventive, promotional, outpatient and basic diagnostic treatments where patients would be able to choose between public, religious and private hospitals based on a regulated tariff. The UHC was to be based on a universal system of seamless health insurance consisting of a mandatory National Health Insurance Fund (NHIF).  

On Thursday, the government said it would continue to prioritise investments towards achieving UHC by ensuring NHIF coverage for all Kenyans through a bottom-up approach and by reforming NHIF and the National Social Security Fund (NSSF) to level the playing field among all Kenyans in terms of health and old age security.   

The government also wants to invest in primary healthcare systems through the establishment of stakeholder-managed primary healthcare funds as strategic purchasers at each Level 4 facility, build-up of supply management systems, and improve management of the healthcare workforce and harmonise working conditions and terms.

Moreover, the government will invest in health products and integrated information communication and technology systems to enhance telemedicine and health management information systems. It will also establish and operationalise emergency medical funds and establish a fund to bridge the financial gaps in the wake of diminishing donor funding in support of key programmes including HIV/AIDS, TB, Malaria, RH/FP, vaccines and nutrition.

On digitisation, Kenya Kwanza had promised to make significant investments in the creative industry. From the budget statement, the government is keen on digital transformation to improve citizen service delivery through infrastructure development and digitisation of its services. With increased digitisation, service delivery will evolve how citizens interact with the government. The digitally enabled transformation will drive tremendous value for economic transformation.

On energy, as promised in the manifesto, the Treasury CS proposed measures to lower the cost of Liquefied Petroleum Gas (LPG) to the consumer. Apart from zero rating, the government had also proposed to remove Import Declaration Fees (IDF) and Railway Development Levy (RDL) fees and levies from LPG. It also aims to continue to attract private sector investment into the sector which will see the implementation of a common user bulk storage and handling facility for LPG to help enhance price and market stability.

However, there was an increase in the VAT rate of petroleum products from eight percent to 16 percent. The government said the differentiated VAT rates have created a loophole for the sector players to inflate their input VAT claims.  

Analysts from PwC in their national budget bulletin observe that the government is keen on stabilising the fiscal deficit and that revenue mobilisation and expenditure rationalisation will be key to achieving that. “How the government will balance between revenue mobilisation; expenditure rationalization; public debt management and other externalities will be key in achieving the economic growth projected,” the PwC team said.

The team further noted that the government should continue to seek new ways of increasing revenue, have a predictable tax system, a tax base expansion, and called for simplification of the tax process. Additionally, debt sustainability management is key as well as addressing inflation and cost of living. “The government should constantly keep this under watch and manage it using fiscal and monetary policies.”