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Kenya: Implication of the early reading of the budget

The National Treasury has expressed the intention of bringing forward the budget process by up to two months to mitigate the challenges that will arise from the August 2017 elections. The main problem is expected is the anticipated lack of quorum in the National Assembly as its members seek nominations from their parties to contest the elections.

The nominations need to be concluded 60 days before the general election, with the expectation that nominees will commence campaigns immediately thereafter. This creates the likelihood that the National Assembly may not have the numbers to pass the budget and any supplementary budget approvals that may be required to allow the government to finance its operations until the budget is approved.

The change in the budget dates is not expected to have an effect on the current budget outlay since the fiscal year will not change with the budget taking effect from 1 July 2017. The only change will be the approvals dates which are expected to be earlier than usual. As is usually the case, measures with revenue implications will have different effective dates with those measures having an impact of prices taking effect immediately. This is normally designed to avert hoarding especially where the changes in fiscal policy have an impact on the pricing of goods. While hoarding was a common feature in the days of price controls, with liberalisation the impact of the changes in the budget dates is significantly less.

A number of tax measures especially those affecting customs duties are agreed jointly with the other East African Governments and published in the East African Gazette. It is unlikely that the Kenyan budget process will affect these revenues measures which we expect to proceed as before. Being a once in five years occurrence, the early reading of the budget in Kenya will have limited impact on the East African Community harmonisation, although it sets a precedent where other countries facing an election or other similar national event may opt to defer or bring forward their budget process, distorting the budget synchronization which is an important pillar in the pursuit of a fully integrated common market.

The Government works largely on a cash basis with any funds that are not spent in a financial year being returned to the Treasury for reallocation, which is the reason why normally there is a rush by government departments and agencies towards the end of the government financial year to clear their budgetary allocations. Even in normal years the budget expenditure is based on estimates since the budget is prepared before the end of the financial year, however this year the estimates will be prepared well in advance with the likelihood that the government will not have a full picture of the expenditure and revenue performance for the year past year. This could have an impact on the government numbers especially on the targeted tax revenues targets, size of the budget deficit for the year and expenditure forecasts resulting in adjustments to larger adjustments to government expenditure and revenue projections during the course of the year.

Clive Akora is an Associate Director with KPMG Advisory Services Limited (cakora@kpmg.co.ke). The views and opinions are those of the authors and do not necessarily represent the views and opinions of KPMG.

David Okwara

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