Kenya’s economy is facing unprecedented shocks as revenue gap intensified after the Finance Bill 2024 was overruled. CNBC Africa's is joined by Ndindi Nyoro, Chair of the Budget and Appropriations Committee at the National Assembly who also doubles up as the Member of Parliament for Kiharu Constituency to get a sense of how the country’s economy is fairing and what interventions is the executive making to stabilize the ship.
Thank you so much Honorable Ndindi Nyoro for joining us. Thank you Ndindi Nyoro for making the time to speak to us from Nairobi, Kenya. Allow me to just quickly get on board giving a temperature check. Where is Kenya's economy today? There's been a lot of issues happening in terms of the protests as well as austerity measures. Where does the economy stand right now? Thank you very much, Ambi. And I hope you are doing well in Kigali. Certainly. Our economy in Kenya, yes, we have had shocks and especially on the social side. But fundamentally, you know, and empirically so, the Kenyan economy especially just by the year 2023 has been among the most solid economies in the region and definitely also in the world. And I say so because economic parameters are just straightforward. One is the level of GDP in the group. And as you know, the year, the current year of 2023, Kenya performed very well at 5.6% of the GDP growth. If you look at our inflation levels, and especially in the last month because we give inflation figures every month, in the month of August, it was around 4.4%. And if you compare the same actually with the month of July, which was 4.3% again, it is quite straightforward that the inflationary side of the economy, we are not doing very badly. Also in terms of the currency and exchange rate, the Kenyan shilling has gained around 20% this year alone. Again, it's the greenback. And even regionally, in terms of the regional currency comparative, we have also gained quite a huge percentage. And therefore, fundamentally, the Kenyan economy is doing well. What we are now doing and burning midnight oil to achieve is for us to be able now to make sure that this growth and achievements of the economy are shared in a manner that every Kenyan feels that growth. So that's why most of the policies we now have, that is especially fiscal policies, are geared towards making Kenya a more egalitarian society and especially on the economic aspect of it. Well, Put, thank you for that. And just to dive in deeper, Ndindi, of course, there was a big setback that the economy is already bearing. And this is in regards to the finance bill 2024, which was shelved. Just take me down the path in terms of how has this impacted, especially on the debt strategy of the country, as well as meeting the recurrent expenditure budgets for the country? I think to put it into context, and you allow me to use the Kenyan shilling in my reference, though I know most of the viewers are also not Kenyan, because the deficit in terms of the then-proposed revenue-raising measures are insofar as the budget is concerned, more so about the budget, less more about the economy. And I say so because, as you know, economically speaking, the government expenditure accounts for around 23% of the entire GDP, and therefore I'll restrict myself in terms of that question insofar as budget implementation and funding is concerned, because most of what happens in the economy, as you know, is beyond the budget. Over 75% of the economy has nothing to do with the government expenditure. So in that regard then, we are talking about this financial year. And this financial year is when, as you know, Kenya got social shocks, and of course emanating from the many grievances that the people of Kenya gave to the leadership. And it was, as you know, Kenya is a very democratic space, and the kind of thing we saw, especially in Africa, can only happen in Kenya. But going back now to the figures, we have a budget of around 3.88 trillion Kenya shillings, and I'm trying to put it into context of what we were trying to achieve then. Out of 3.88 trillion shillings, the expenditure side of this money is that 1.6 trillion is recurrent of the national government. For the benefit of viewers, Kenya has got what we call devolved counties, or devolved governments, where yes, we have provision of service by the national government, but we also have functional counties, maybe equivalent to what we call states in other countries. So in terms of the national government expenditure, it is currently 1.6 trillion Kenya shillings, which is recurrent. We have also 641 billion shillings in terms of development. We have what we call consolidated fund service, where we now pay interest rates, and now that's the area of answering your question, is around 1.23 trillion Kenya shillings, out of which debt repayment, interest rate alone, is taking around 1.008 trillion, and of course now the balance of 14 billion is the money that the national government will be sending to our 47 counties in this current financial year. So in terms of debt then, you look at the revenue side, and that is where your issue around the revenue-raising measures that never succeeded comes in, because in terms of our projections of revenue, we project to have around 2.6 trillion Kenya shillings in what we call ordinary revenue. These are taxes and other revenues that the government gets that goes straight to the consolidated fund. We also expect around 441 billion Kenya shillings in what we call appropriations in aid, or ANA, and grants of around 51 billion, and therefore that leaves a gap of around 767 billion, which is the current deficit. The deficit is actually within our own benchmark, and also is a climb down from where we have been, because the current deficit to GDP ratio is around 4.4%, and as you know, we were quite higher in the previous years, because what we are doing here in Kenya is more so to have a lean government spending less, and the less that is spent only goes into areas that serve Kenyans directly. And that is why we have fiscal consolidation in Kenya, where we are cutting on expenditure, which we have done in the budget, but also on the other side, repaying as much debt as we can, and at the same time, trying to achieve a lower deficit to GDP ratio. So Ndindi, what does the road ahead look like now that there is no way forward in terms of the Finance Act of 2024? It is still within the courts yet to make a decision on this. Of course, there was an appeal, and at the same time, as we wrap it up, I also want to know, what are the strategies that the government is looking at in terms of domestic revenue mobilisation, and of course, meeting your debt obligations? You know, in terms of revenue mobilisation, there are two very distinct areas that have to be refined over time. One is in terms of policy, changing laws and policies so that we can then aim at raising more money. But I think the elephant in the room in Kenya and most of the countries in Africa has more to do with tax administration. The current laws as they are, they are operating in a situation where most of our economies in Africa, Kenya being one of them, only around 30% of our economy is formal. And you know, when you are raising revenue, the target is usually the formal sector of the economy. Just to give you an example, in the employment side, in terms of jobs, Kenya has got around 20 million working population. But out of that, only 3 million have payslips. Only 3 million are in formal jobs. 1 million in government and 2 million in the private sector. So when the taxman is collecting revenue, their usual target is always around the mainstream, the mainstream being formal. I think there is a lot to do then in expanding the base by coming up with issues around tax administration that also goes to the informal, that also targets beyond the formal sector. If the economy 70% is operating beyond the formal, then even revenue-raising measures must also target that area also, so that we get as much people as possible contributing. What I'm trying to say in answering that question is that there is still a window where we could end up raising more revenue without necessarily actually even changing the laws. But also, as I wind up on that, you know, I think the biggest problem we have in terms of managing the economies of Africa is basically the fact that our revenue-to-GDP ratio is also quite low. And you know, it's usually the issue about the chicken and the egg what comes first. Because we compare ourselves with developed economies. If you look at OECD countries, their revenue-to-GDP ratio is around 34%. Sweden and Denmark is around 45-46%. Kenya is 14%, one-fourth. Maybe the highest in Africa is around South Africa at 25%. What I'm trying to say is that with the Kenyan GDP now of around 18 trillion Kenya shillings projected this financial year, if we collected revenue like South Africa with the same laws we have or even refining the laws we have, we'll be collecting around 4.5 trillion Kenya shillings, meaning we would have read a surplus budget. So there is a lot of work to do so that as we come up with policies around revenue raising, we also don't reach up the peak of the Lafaz curve where then we start collecting less revenue as we raise the percentages. And the way to do that is to target a broader economy, that is, tax administration, to also be robust enough to go beyond the former economy. Indeed, and as we close off, final question. In terms of looking at the austerity measures that the government did institute, have they in any way assisted the situation and are we likely to see more of the tightening of the belt? Definitely it would be incorrect for me to say that we are in a better place than we would have been if the revenue was realized. But that has also opened the eyes of the policymakers, including myself, that we can do better with less sometime. That has helped us to be very deliberate in many areas. Deliberate in terms of trying to make the government a bit lean. When we revised our budget, for example, we have denied budgets to 47 government institutions, which after going through them, they were either moribund or they were duplicating roles. That's a good step in the right direction. Second is that it has now brought urgency in terms of reforming our SOEs, state-owned enterprises, in several respects. One, in making sure that if the SOEs are commercial in nature, then they must be commercial in nature and they must generate money. And one of the areas that we have been able to really be very firm on is that, as you know, most of the SOEs across Africa, they exist to serve themselves. That is why challenges, for example, in power utility companies, in Kenya, as they are in South Africa, as they are in anywhere else, because they exist to serve themselves. I hear you. I hear you, Honorable Ndindi, and I get your point. I'm afraid our time is far much spent, and this is a very valuable conversation we've had there, and we shall definitely be inviting you again to really prosecute these very important issues that are shaping conversations across Kenya as well as the region. Much appreciated for your time, and looking forward to seeing these measures yielding more results. Thank you, sir. Well, that is Honorable Ndindi Nyoro, the Chair of the Budget and Appropriations Committee in Kenya.
Theme: Kenya's economic performance amid revenue gap and fiscal challenges
Kenya's economy is navigating through unprecedented challenges as the revenue gap widens following the overruling of the Finance Bill 2024. Ndindi Nyoro, Chair of the Budget and Appropriations Committee at the National Assembly and Member of Parliament for Kiharu Constituency, sheds light on the state of the economy and the strategies being put in place to stabilize it. Nyoro highlighted that despite recent social shocks, the Kenyan economy has been robust, with a GDP growth rate of 5.6% in 2023. Inflation has been moderate at 4.4%, and the Kenyan shilling has strengthened against the dollar by 20% this year. The focus now is on ensuring that the benefits of this economic progress are felt by all Kenyans, with fiscal policies aimed at creating a more equitable society. The shelving of the Finance Bill 2024 has posed challenges for the country's debt strategy and meeting recurrent expenditure budgets. Nyoro explained that Kenya's total budget of 3.88 trillion Kenyan shillings includes significant allocations for recurrent expenditure, development, and debt repayment. The deficit stands at 767 billion shillings, but efforts to reduce government spending and debt obligations have contributed to a lower deficit-to-GDP ratio of 4.4%. When discussing revenue mobilization and debt obligations, Nyoro emphasized the need for policy reforms and improved tax administration. With only 30% of Kenya's economy operating in the formal sector, expanding the tax base to include informal activities is crucial for enhancing revenue collection. Nyoro also pointed out that Kenya's revenue-to-GDP ratio of 14% is significantly lower than that of developed countries, highlighting the potential for increased revenue generation. Despite the austerity measures implemented, Nyoro acknowledged that more can be done to optimize government spending and reform state-owned enterprises. By focusing on efficiency and commercial viability, Nyoro believes that Kenya can navigate its current economic challenges more effectively. In conclusion, Nyoro emphasized the importance of continued fiscal discipline and strategic reforms to drive economic growth and ensure financial stability in Kenya. The government remains committed to addressing the current economic challenges and fostering a more inclusive and sustainable economic environment for all Kenyans.
"With the Kenyan GDP now of around 18 trillion Kenya shillings projected this financial year, if we collected revenue like South Africa, we'll be collecting around 4.5 trillion Kenya shillings, meaning we would have read a surplus budget."
['Kenya economy', 'Ndindi Nyoro', 'Finance Bill 2024', 'GDP growth', 'tax administration', 'revenue mobilization', 'debt strategy']