In brief
- The revised FY25 fiscal deficit has now widened by 1.0pp to 4.3%, following the shelving of the Finance Bill 2024. Even though the authorities initially eyed a spending cut in the order KES 200.0bn (1.1% of GDP) and mainly on the discretionary budget items, the execution risk has been high.
- Whereas the shelving of the Finance Bill 2024 resulted in a funding gap of KES 346.0bn, the limited spending cut leaves room for caution. The authorities are likely to tread carefully in introducing newer tax proposals in future budgets, casting doubts on implementation of the Medium-Term Revenue Strategy (MTRS) that covers FY25 – FY30 period.
- Critically, President Ruto’s appointment of Hon. John Mbadi, nominated Opposition MP, as the Cabinet Secretary (CS) for the National Treasury caught our eye. Granted that Mbadi has assumed senior positions in his political party and in the National Assembly, his tenure as Treasury CS, should he be approved after the vetting stage, looks like a poisoned chalice.
- Legislative process is taking shape with the National Assembly formally deleting all the clauses of the Finance Bill 2024 and approving the spending cut to the national government. This paves the way for the publishing and approval of the Supplementary Appropriations Bill (No. 2) 2024 this week.
- Broadly, this should give the IMF some level of comfort ahead of the expected Executive Board approval later in August. With the programme targeted to end in March 2025, the authorities have alluded to some extension, speaking to fiscal targets for June 2025.
- The clarity regarding FY25 budget, limited scope for aggressive revenue mobilization in the future, and execution risks with budget implementation gives us the conviction that Fitch Ratings and S&P will downgrade Kenya a notch lower to B- on 02 August and 23 August 2024, respectively.
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