Kenya could post a primary surplus - the excess of government revenues over non interest spending - of Ksh54.7 billion ($379 million) this financial year, said Musa Kathanje, the National Treasury’s Director of Macro and Fiscal Affairs.
However, the primary surplus, which would be the first in two decades, could be achieved only in case the government meets its revenue targets.
According to Treasury Secretary Njuguna Ndung’u, the country's authorities are set to increase revenue collection and determine the optimal level of taxation that will help achieve their funding goals without distorting markets.
"Taxes should not affect timing and the quantum of investment. This will ultimately reduce public debt and create fiscal space over the medium term to finance priority capital projects," he said, speaking at the presentation of the preliminary budget estimates for 2024-25 on August 18.
Ndung’u noted that so far, the finance ministry has released KSh279.6 billion ($1.9 billion) exchequer for the 2023/24 fiscal year to ensure smooth implementation of the planned programs.
Achieving a primary surplus is seen as an important measure of debt sustainability, which indicates that the government's taxes are sufficient to cover recurring expenses without additional borrowing. In the 2021-22 fiscal year, the Treasury spent 17.7% of loan proceeds on recurrent expenditures.
With a debt-to-GDP ratio of 69%, the International Monetary Fund (IMF) rates Kenya's risk of debt distress as high.
Principal Secretary Chris Kiptoo said that as per previous years, the government is "fully up-to-date in terms of servicing public debt, even with challenges in resource mobilization." He noted that all government ministries, departments and agencies have been directed to prioritize payment of pending bills this fiscal year.
President William Ruto's administration planned to expand the tax revenue base in order to make the government less dependent on foreign debt. This led to enactment of the Finance Bill this June, which provides for the increase of the value added tax on fuel from 8% to 16%. It also requires companies and workers to pay 1.5 % of their gross salaries into a housing levy, which will go into a fund to finance the development of low-income housing.