- Kenya’s FY2024/25 budget is the largest in the nation’s history at $31.1 billion.
- It, however, seeks to reduce the budget deficit through contentious tax reforms despite public outcry.
- The budget also seeks to roll out key banking and state corporation reforms.
Kenya’s Treasury Cabinet Secretary, Prof. Njuguna Ndung’u, presented the largest budget in the country’s history for the fiscal year 2024/25, amidst a backdrop of economic challenges and simmering public discontent on punitive tax measures.
The proposed budget of Kes4 trillion ($31.1 billion), up from Kes3.75 trillion in the previous year, aims to spur socio-economic transformation while addressing the budget deficit.
Kenya’s 2024/25 budget is anchored on five pillars and twelve enablers. These pillars include Agricultural Transformation and Inclusive growth, Micro, Small and Medium Enterprises, Housing and Settlement, Healthcare, and Digital and Creative Industry – $2.2 billion (Kes283.5 billion) has been allocated under the five pillars.
Allocation to other thematic areas is as follows: Education – $5.1 billion (Kes656 billion); National Security – $1.7 billion (KES219.4 billion); Food and Agriculture Security – $656 million (KES84.9 billion); Energy, Infrastructure & ICT – $3.7 billion (KES477.2 billion); Health – $981 million (KES127 billion); Environment protection, Water and Natural resources – $850 million (KES110.1 billion) among others.
Economic context and fiscal goals
Prof. Ndung’u’s budget highlighted the need for robust fiscal measures to stabilise Kenya’s economy. The budget deficit is targeted to decrease from 5.7 percent of GDP in the current fiscal year to 3.3 percent in FY2024/25.
To achieve this, the government has proposed several contentious tax reforms aimed at increasing revenue and reducing reliance on external borrowing.
Key tax proposals and controversies
The new tax proposals have been met with significant criticism. One of the most contentious is a motor vehicle tax set at 2.5 percent of the vehicle’s value, and the reintroduction of VAT on bread, a staple food item.
Kenya’s Finance Bill 2024, which is undergoing public participation, proposes a minimum amount and a maximum amount of $38.2 (KES5,000) and $772.4 (KES 100,000) respectively, but Prof. Ndung’u did not touch on the maximum cap of KES100,000 as proposed in the legislation.
“This [motor vehicle tax] is expected to have an adverse effect on the uptake of motor vehicle insurance policies and in the case of commercial vehicles, the additional costs are likely to be passed onto the consumers. For the insurance companies, it is expected to increase the administrative costs relating to compliance,” analysts at Tax advisory firm PwC Kenya said in a statement.
PwC Kenya also observed that proposed amendments to include VAT on certain financial services is likely to inflate the cost of financial services to consumers. “The changes will bring additional VAT compliance burden to financial services providers increasing their operational costs. It may however provide relief where the institutions incur significant vatable supplies as the institution will be eligible to claim input VAT on supplies used in generating the taxable supplies.”
Critics argue that these taxes will disproportionately affect ordinary Kenyans, already struggling with high living costs. The government is however defending these measures as essential for economic stability and growth.
Key sector allocations in Kenya’s FY2024/25 Budget
The allocation for the health sector has been reduced to $981 million (Kes127 billion), a huge drop from the Kes141.2 billion in the just-ending fiscal year. This reduction comes despite ongoing challenges in the healthcare system and a reliance on donor funding, which has been declining as well. This trend raises concerns about the government’s commitment to health spending and the potential impact on service delivery.
“The reliance on donor support has also affected health sector allocations. While the government has increased its absolute allocation to the Ministry of Health budget, the decline in donor support has left a financing gap for key health inputs,” PwC Kenya analysts observed.
The agriculture and tourism sector has seen a positive turnaround, with a 7 percent growth in 2023, attributable to favourable weather and government interventions such as farmer registration and fertilizer subsidies. The budget allocates $422 million (Kes54.6 billion) to further support the agriculture industry, focusing on enhancing value chains and providing affordable working capital to farmers.
The tourism sector, crucial for economic growth and job creation, receives a boost with an allocation of $183 million (Kes23.7 billion), an 89 percent increase from the previous year. The government’s strategy to diversify tourism beyond wildlife and safaris to include cultural heritage, beaches, and ecotourism aims to maximize economic potential and create job opportunities.
Read also: Kenya’s economy posts 5.6 per cent GDP growth in 2023
MSME support and banking reforms
Citing the role of Micro, Small, and Medium Enterprises (MSMEs) in economic recovery, the budget allocates $56 million (Kes7.26 billion) to support MSMEs, an increase from the previous year with plans underway to provide affordable credit while fostering business growth.
In Kenya’s banking sector, significant reforms are proposed to enhance oversight and sustainability. These include increasing the minimum capital requirements for commercial banks from $77 million (Kes10 billion), and amending the Banking Act to impose more stringent penalties for non-compliance.
Overall, Prof. Ndung’u noted that noted that the banking sector remained stable and resilient in 2023 with strong liquidity and capital adequacy ratios. The CS also noted that there has been a transformation in the banking sector evidenced by; growth in the asset base by 0.3 percent from $59.7 billion (Kes7.72 trillion) in February 2023 to Kes7.74 trillion in February 2024, increased adoption of branchless banking and a shift in the risk profile prominently in cybersecurity, cross-border and climate-related risks.
Infrastructure and urban housing
Kenya’s 2024/25 Budget also seeks to address the country’s urban housing challenge, with a deficit of 200,000 units per year. To bridge this gap, the government has initiated the construction of affordable housing units and structured long-term financing schemes, including the National Housing Fund and Cooperative Social Housing Schemes. The housing sector receives an allocation of $711 million (Kes92.1 billion), with a focus on affordable housing, urban improvement projects, and mortgage financing.
Additionally, the budget allocates $538 million (Kes69.7 billion) towards reliable and affordable energy, focusing on renewable energy projects, rural electrification, and geothermal development. Additionally, $1.8 billion (Kes232.4 billion) is allocated to the transport and logistics sector, targeting road and railway development, which are critical for reducing business costs and enhancing mobility.
State corporation reforms
The budget also outlines reforms for state corporations and government-owned enterprises, aiming to privatise and restructure entities to improve efficiency and governance. The draft Government Owned Enterprises Bill 2024 and the Government Investment Regulations 2024 provide frameworks for these reforms, which are intended to maximize the potential of these entities and eliminate function duplication.
