In brief
- The FY24 draft budget estimates signal an expansionary spending plan (+6.4% y/y to KES 3.6tn) and an ambitious Finance Bill 2023 has telegraphed an aggressive revenue-raising efforts for the next fiscal year.
- With an emphasis on reining in the previous tax exemptions and focus towards widening the tax base, we believe that the Finance Bill 2023 effects policy guidelines contained in the earlier released 2023 Tax Expenditure report and the recently approved National Tax Policy.
- Nonetheless, we expect pushbacks in the ongoing public participation leg of the FY24 budget process on some of the Bill’s contentious clauses. Specifically, the proposed 3.0% mandatory housing levy to be borne by both employer and employee, and the requirement for a taxpayer to deposit 20.0% of value amount in a tax dispute before appealing at the High Court sticks out.
- We expect the National Treasury Cabinet Secretary to give direction on the huge domestic arrears as he formally presents the FY24 budget in the National Assembly on 8th June 2023. In addition, the slow Exchequer disbursements in the current fiscal year has not been comprehensively addressed and risks spilling over to the next fiscal year.
- The authorities target a lower fiscal deficit in FY24 at 4.1% of GDP (FY23: 5.7%). The recent proposed legislation to tweak the fiscal rule from the current KES 10.0tn public debt limit to a debt anchor of 55.0% of GDP in present value terms, will give some policy space for implementing the FY24 budget.
- Faced with the maturity of USD 2.0bn KENINT 6.875% 2024, we believe Kenya will muddle through as it executes a liability management operation by 1Q2024. However, a suppressed yield environment in the local rates raises a hurdle for achieving the relatively higher FY24 domestic borrowing target.
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