Thursday, June 11, 2009

Budget Initial Thoughts

Here are some of the budget highlights and my take:

  • UK has tried to make an interesting budget by making it targeted.
  • CDF per constituency is now higher by 20% but also increased funding for health, teacher hiring, school construction et al. But what is needed is better governance. For every Gatanga there is 10 Sabotis; Nyeri Town etc.
  • Reduced duties on cotton but also on mitumba i.e. zero net effect on cotton farmers
  • Money for wholesale agriculture markets- it’d be cheaper to bring in legislation to allow local commodity futures market
  • Reduced duty on maize imports-what about increasing research spend for KARI to develop drought-resistant maize? There was money towards irrigation projects...
  • Ksh250mn for juduciary development work. Drop in the ocean...
  • Some rural ICT initiatives. These I like...
  • Reduced duty on mobile handsets. The industry doesn't need a helping hand. Money would have been better encouraging fibre optic coverage or even solar energy initiatives.
  • Ksh1.3bn towards the light railway project, but note this needs Ksh20bn
  • Reduced dutieson cosmetics-for who?
  • Usual measures aimed at reducing ministry car use; expenditure on stuff like furniture, travel. Remember Kimunya's ideas? Not that this will entail new cars. How and when will the expensive ones be disposed?
  • No MP taxation-UK has just escaped a mauling
  • Wierd stuff like reduction of duty on spirits- a good finmin will always raise his cash via sin taxes.

Overall budgeted expenditure is growing at almost 20% per year which is in line with inflation. Total gross expenditure is Ksh864bn against KRA revenue target of Ksh570bn (up 14% on last year). Thus I make the deficit a shade short of Ksh300bn. Of this Ksh109bn has been flagged as being financed via bonds; there is some external aid (Ksh35bn). So still have a gap.

Bonds (cue higher interest rates) will finance some and of course some listings when NSE is buoyant enough. Do note that if there is competition between NSE and bonds, bonds will win for the time being so expect downward NSE movement if the bonds are flooded.

Bottomline: Its an aspirational budget, but the deficit remains key worry.

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