Unpacking Kenya’s 2021 budget policy statement

Kenya's Cabinet Secretary for National Treasury, Ukur Yatani, is currently working on the 2021 Budget Policy Statement. The goal of this policy is to establish measures that will create an environment conducive to economic recovery and support the livelihoods, jobs, businesses, and industrial growth in the country. To provide more insights into the highlighted spending plans in the 2021 Budget Policy Statement, CNBC Africa sat down with economic analyst, Reginald Kadzutu. Here is a breakdown of the key aspects discussed in the interview. The 2021 Budget Policy Statement reveals that Kenya is set to have a budget exceeding one trillion, which will primarily be funded through debt. One of the noteworthy allocations in the budget goes to the education sector, receiving approximately $505 billion. Shockingly, a large portion of this allocation, $487 billion, is designated for salary payments, leaving minimal funds for actual development and innovation within the education sector. The next sectors with significant budget allocations are national security and infrastructure, but debt repayment is set to consume a substantial portion of the budget at around $605 billion, surpassing the combined allocations for the culture and health sectors. This heavy emphasis on debt repayment raises concerns about the budget's potential impact on economic growth, job creation, and poverty alleviation in the country. Despite the importance of this budget, it has not yet been approved by Parliament. While the budget policy paper has been tabled, the details on funding, including taxation measures and debt management strategies, are yet to be presented. This crucial information plays a significant role in shaping businesses' expectations and market variables. The medium-term debt management strategy outlined by the Treasury highlights proposed changes to the public finance management law. One significant proposal is to revise the current debt ceiling of nine trillion, given that the country is already close to reaching 80% of this limit. Increasing the debt ceiling could provide more room for borrowing to address the mounting national debt, which stands at around 7.6 trillion. Moving forward, the challenge lies in evading recessional pressure amidst the growing debt burden. To avoid economic downturn, it is crucial for the government to rely on accurate data to formulate realistic policies that reflect the true state of the economy. Policies should also cater to the needs of the majority of the population, particularly focusing on creating jobs in the informal sector, which plays a vital role in Kenya's labor-intensive economy. By addressing these key points, Kenya can navigate the challenges posed by its mounting debt burden and work towards sustainable economic growth.