Govt Borrows Ksh1 Trillion as Kenyans Hold Ksh1.5Trn In Fixed Deposits

The last one week has been busy, with the Central Bank of Kenya (CBK) releasing its data for the previous fiscal year, the launch of the Women Enterprise Fund Strategic Plan 2021, the sale of a new government bond, and so on. Let’s look at some of the biggest financial news from the last seven days and how they will affect you.

Tough Times Ahead As Government Borrows Ksh 1 Trillion In One Year

Data from the Central Bank of Kenya (CBK) shows that in the financial year ended in June, the National Treasury borrowed slightly over Ksh1 trillion, pushing the country’s total public debt to a staggering Ksh7.71 trillion. This translates to about Ksh2.8 billion borrowed every single day since June last year.

With Kenya’s GDP estimated to be Ksh10.28 trillion, the country’s debt-to-GDP ratio stands at about 75%. In comparison, Tanzania’s debt-to-GDP stood at 39.2% in October 2020, while Uganda’s debt-to-GDP ratio is projected to cross the 50% mark in the 2021/2022 fiscal year.

Between March last year, when the first case of Covid-19 hit the country to June of this year, the National Treasury borrowed Ksh1.43 trillion.

To put this into perspective, the government has borrowed more money in a year than former President Mwai Kibaki borrowed over the course of his 10-year term. Between June 2003, when President Kibaki read his first budget and June 2013, when he read his final budget, his government had borrowed only Ksh1.2 trillion.

Defending the heavy borrowing, the Treasury claimed that it was necessary to borrow this much following the decline in revenue collection caused by the economic slump brought about by the Covid-19 pandemic. However, critics feel that this borrowing can be attributed to a bloated expenditure and wanton corruption in government.

Left unchecked, such levels of borrowing are going to make things more difficult for Kenyans. Already, the International Monetary Fund (IMF) has forced Kenya into a 3-year program with the aim of reducing the country’s debt vulnerability. Among the measures recommended under this program include reduced spending and increased taxation.

Following the implementation of the program, the government has already raised taxes on things like airtime, cooking gas, and loan fees. The government has also started reducing its expenditure, with public universities experiencing a 26% budget cut.

Kenya’s Wealthy Move Ksh34 Billion Into Fixed Deposits Between March And May

Data from the CBK shows that between the months of March and May, Kenya’s wealthy individuals and companies moved a record Ksh33.8 billion into fixed deposits, pushing the amounts held by Kenyans in fixed deposit accounts to a record high of Ksh1.567 trillion.

This came at a time when deposits held in foreign currency accounts fell by Kshs34.6 billion between March and May, while the amount of cash in circulation remained unchanged over the two months.

This suggests that Kenya’s rich, who had their money in dollar accounts, were switching to local currency fixed accounts in order to keep their money safe, and at the same time earn better returns on their money, with local currency fixed accounts currently paying a 6.3% return on average.

Analysts believe that this shift from foreign currency fixed accounts to local currency fixed accounts is a direct result of the strengthening of the Kenyan shilling against the dollar over the last few months. In December 2020, the shilling was trading at Ksh110.59 to the dollar, before moving to Ksh109.73 against the dollar in March, and Ksh107.42 in May.

The gains of the Kenyan shilling against the dollar can be attributed to the increased flow of the dollar into the country following the release of new funds from the IMF and the sale of government debt to foreigners.

‍Kenyans In Diaspora Remit Ksh189 Billion In First Half Despite Covid

In the first six months of 2021, Kenyans living and working outside the country sent home Ksh189.4 billion, despite persisting economic disruptions in many of those countries as a result of the Covid 19 pandemic. This is a significant increase from the Ksh158.2 billion that was sent in remittances in the first half of 2020.

Remittances sent from North America increased by 37%, while those from Europe increased by 41.4%, helping offset a 25.2% decline in remittances from the rest of the world. The largest source of remittances into Kenya is the United States, accounting for 58.8% of all remittances.

Ksh115.7 billion was sent from the whole of North America (United States, Canada, and Mexico), accounting for 61.1% of total remittances. Kenyans living in Europe sent home Ksh38.6 billion, or 20.4% of all remittances. Kenyans living in the rest of the world sent home Ksh35.1 billion.

Since 2015, remittances have been Kenya’s biggest source of foreign exchange, ahead of tea and coffee exports, horticultural exports, and tourism.

Ksh9.3 Billion Up For Grabs For Women Entrepreneurs

The Women Enterprise Fund (WEF) plans to give out Ksh9.3 billion over the next 3 years (2021-2024) in a bid to accelerate women entrepreneurship in the country. This is a Ksh3.7 billion increase from the Kshs5.66 billion that the fund disbursed between 2019 and 2021.

Speaking at the launch of the WEF 2021 Strategic Plan, Prof Margaret Kobia, the CS for Public Service, Youth and Gender Affairs - the ministry under which the WEF falls – said that the 2021 strategic plan is targeting 551,789 beneficiaries, more than double the 248,211 beneficiaries who benefited from the fund in the period between 2019 and 2021.

Among the products that will help the fund achieve these figures is the Thamini loan, a new loan product which is targeted at widows. Beneficiaries of the Thamini loan will not require any collateral to access the loans. In addition, the loan will attract no interest or administrative fees, and will offer flexible repayment periods of 15 to 30 months.

Among the other products introduced include various business loans for SMEs, as well as Kilimo loans for women engaging in agriculture. The WEF has also introduced an asset financing product which will help women entrepreneurs purchase assets for their small and medium enterprises.

Taxman Looks At Ksh14 Billion In Digital Service Tax

The Kenya Revenue Authority hopes to collect Ksh13.9 billion in digital service tax from foreign internet companies operating in the country between now and June 2022. Introduced in January, digital service tax is a new tax that is charged to companies selling their services exclusively over the internet, or those providing platforms for such transactions.

Among the major digital firms targeted by the tax, which is 1.5% of gross transaction value, include companies like Netflix, Amazon, and Uber. The taxman projects that these companies will generate about Ksh926 billion in sales between now and 2022. KRA is targeting Ksh3.4billion in digital service tax in the 2021/2022 fiscal year.  

Price Of Flour Shoots Up Following Decrease In Maize Supply

A dip in the supply of quality maize in the country has triggered an increase in the retail prices of maize flour, which is a staple in Kenyan homes. The decrease in supply, which has seen the price of a 90kg bag of maize rise to Ksh2,800 has been caused by failure of maize from Tanzania to pass aflatoxin tests. Tanzania has been supplying most of the maize in the Kenyan market.

Currently, a two kilo packet of Soko is going for Ksh104, Pembe at Ksh106, Jogoo at Ksh109, and Ajab at Ksh114. This comes when Kenyans are still under pressure from rising costs of other food items, as well as other household commodities.