Parliament has accused the National Treasury of setting an unrealistic revenue target in the budget, forcing the State to borrow more or cut back on development spending to cover tax collection shortfalls.
The Budget and Appropriations Committee of the National Assembly, in its report on the 2023/2024 Supplementary Budget II, said that by the end of April, the Treasury had a revenue shortfall of Sh222.2 billion against its 10-month target of Sh2.4 trillion.
As a result, the country’s budget deficit for the current fiscal year as per the Supplementary II Budget has risen to Sh908.6 billion, from the Sh718.9 billion in the original budget estimates published in June 2023.
In the June budget estimates, the fiscal deficit as a percentage of GDP stood at 4.7 percent, but this has now risen to 5.9 percent, putting the country at risk of breaching some of the loan covenants with the International Monetary Fund (IMF) that call for a steady reduction of this deficit.
“The committee observed that the National Treasury continues to overestimate revenue, resulting in recurring deficits and necessitating increased borrowing to cover shortfalls. The shortfall in revenue in the fiscal year 2023/2024 is substantial, as indicated by the revised revenue targets by the National Treasury, which have been lowered by Sh250 billion,” said the committee in the report.
To finance the budget shortfall, the Treasury has targeted net borrowing worth Sh589.3 billion from the domestic market and Sh319.3 billion in foreign net financing.
The borrowing targets tend to be reviewed over a fiscal year, depending on the revenue performance and financing conditions, especially in the external market.
At the beginning of the year, the Treasury was targeting Sh587.4 billion from the domestic market, and Sh131.5 billion externally. This was revised to Sh474.5 billion and Sh412.1 billion respectively in the Supplementary I Budget of November 2023 (where the total deficit rose to Sh886.6 billion).
