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Private Sector engagement in the budget making process

The Kenya budget cycle is well on its way and is in fact half way through with the National Treasury and Planning having just concluded the public hearings for FY 2021/22 and Medium-Term budget proposals.

The budget is the most important policy through which the Government uses to establish and implement its national agenda and as such is crucial that stakeholders participate in its development.

Ideally, the budget records all resources to be collected by the government and the different ways they are to be employed during a given period of time. Ex ante, it represents the government’s financial plan for resourcing those activities designed to deliver its chosen policies in that budget period. The budget attempts to show what these activities will cost and how the government intends to finance them. Ex post, it shows what the government actually did, who paid for it and in what form (e.g., through taxes, user fees, donor assistance or government borrowing).

As highlighted in Vellum feature of 06th 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.

Additionally, in the Weekly Vellum edition of 20th November, 2020, we provided highlights of the Quarterly Economic and Budget Review Report for FY 2020/2021 which is published in accordance with Section 83 of the Public Finance Management Act (PFMA).

In summary, the report outlined the country’s economic performance. As expected, 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.

However, this has been at a significant cost to the economy. 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. 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.

This aside, as the National Treasury now embarks on developing the Budget Policy Statement which will inform the Finance Bill, 2021 it is crucial that stakeholders take note of the key dates for public participation.

BUDGET CALENDAR FOR FY 2021/2022

TIME ACTIVITY RESPONSIBILITY
Aug 2020 Development and issuance of MTEF guidelines by National Treasury
Sept 2020 Development of Medium-Term Budget Framework by Macro-Working Group National Treasury, CBK, KNBS, KIPPRA, KRA, CRA & Macro-economic Department
Nov 2020 Preparation of MTEF Budget Proposals by MDAs
Feb 14, 2021 Draft Budget Policy Statement Macro-Working Group
April 2021 Preparation and approval of Final MDAs Budgets by National Treasury
June 2021 Annual Budget Statement by National Treasury
June 30, 2021 Appropriation Bill Passed by National Assembly
June 30, 2021 Finance Bill Passed by National Assembly

Invitation to participate:

As the backbone of the economy, private sector involvement in the budget making process is paramount and necessary in enabling individual companies to understand the impact of the domestic revenue raising measures (taxation), debts and expenditures.

Whereas this is not a new approach, at least since the enactment of the PFMA, 2012, it is increasingly becoming clear that a closer walk through the process will help the companies better prepare and also project ahead. Companies will be better prepared to scrutinize the operating legal and economic environment to position themselves more strategically by predicting times and seasons for business.

Premised on this understanding, Oxgyene is developing a businesscentric and outward looking approach on providing the clients with deep and wide, step by step insights with regards to the current budget making cycle of the FY 2021/22- 2022/23. In this regard, we shall be hosting a number of sessions in the course of the budget making process providing sector based analyses of Government allocation, facilitating engagements with key Government stakeholders including legislators among others.

If interested in the same please get in touch with us via: Magdalene.Kariuki@ oxygene.co.ke

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