The National Treasury Cabinet Secretary John Mbadi spoke to the Business Daily ahead of his June 12 budget statement in Parliament. The interview covered an array of topics including rebuilding confidence in budget-making, revenue underperformance, spending pressures and Kenya’s relationship with its multilateral lenders.
There is calm in the streets this time round compared to the same period last year when we saw a bungled process, how have you done things differently?
Last year’s events were a learning experience for all of us, including those who joined the government afterward, prompting a rethink of how we do things. One of the concerns of the public agitation is there was not much involvement, openness or transparency in the budget process and the generation of the Finance Bill, which this year I can say we have done differently.
We have been more involved from the word go since last year. We have done some public engagements in the streets some of which I have personally led…in Nairobi-Jevanjee, I also went to Mombasa. I have had engagements with the youth from all the regions.
As we expect the budget statement, we are at the same time seeing a third revision in the 2024/25 budget because of some underperformance in revenues and new spending pressures. What can we expect from Supplementary III?
There isn't much to expect. We will just be looking at those arrears where absorption may not be practical between now and June 30 and take them off and use the funding to factor in some of the expenditure pressures.
The Supplementary III will just regularise a few expenditures around article 223. There won’t be too much adjustment in terms of budget re-alignments.
You did speak about the termination of Kenya’s programme with the IMF previously and you gave reasons why you didn’t budget for funding in the new financial year, however you also have not priced in any funding up to June 2029, why is this the case?
We are being very cautious because before you get into an arrangement with the IMF you can’t assume you will get funding. The financing might not be so much going into the future because we have almost exhausted our quota even as we open space through repayments.
Going forward I want Kenyans to understand that the IMF's primary responsibility is not to fund the budgets of member countries but for balance of payments support and to help members in financial distress.
It’s not a banking institution where you can get loans. We are trying to minimise our focus on the IMF as an institution where we borrow from but that does not mean that we are stopping our engagement with the fund. If we agree on a new funded programme, then we can shift some of our expected external financing to the IMF.
When can we expect the estimated $750 million (Sh96.9 billion) funding from the World Bank?
This is well on course, and the World Bank has promised to sit in early June to approve the funding — the only outstanding external financing for the current financial year.
We have met a lot of the conditions set to unlock the funding. It is my hope that we get the money from the World Bank sometime in June.
Coming to the Finance Bill, we saw softer proposals, but there were expectations for relief — such as reductions in PAYE, VAT, and corporate income tax, why didn’t we see this?
We did a simulation on reducing the corporate tax to 28 percent and VAT coming down to 15 percent. Our view, however, is that the economy is underperforming and revenue collection remains below target.
It is too risky to start reducing tax rates and so we shelved that decision to a time when we have monitored and implemented some of the revenue mobilisation measures under tax administration such as dealing with tax expenditures. Once we see that the effects of the measures are allowing us to collect more revenues, then we will move to the next step of lowering the tax rates.
There is a feeling that increasing revenue alone won’t just cut it in achieving fiscal consolidation as we see missed targets, are we still on course for fiscal consolidation?
We first resisted the temptation of over projecting revenues. I am very confident that without shocks to the economy, we could for the first time hit our targets because we are more realistic with the base.
This budget deficit we are predicting at 4.5 percent is something we can sustain to the end of the financial year. We are also working to make our expenditures efficient and that’s why we have come up with e-procurement. We also want to improve on the quality of procurement so we can save more and release the funding to service support.
You are hoping to raise Sh149 billion from privatisation in the new financial year, we are still waiting to see any major sale of State assets. How confident are you that you will get there?
The process of SOEs reforms is ongoing and very robust. We started with consolidating enterprises with overlapping mandates. We are moving to privatisation, and you can see a lot of initiatives around the private sector.
Coming to privatisation of commercially viable firms, we are moving very quickly with Kenya Pipeline Company (KPC), and we have signed documents to allow that to be done.
KPC is ready for privatisation because, one, it is a profit-making entity and two, it already operates as a limited liability company.
There is also an initiative to see if we could offload more of our ownership in Safaricom and so we believe we are likely to get the Sh149 billion through privatisation.
