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Kenya economic update

A report released by the PKF organization has shown that Kenya’s total nominal public guaranteed debt as of December 31, 2022, was Sh9.1 trillion, representing 63 per cent of Gross Domestic Product (GDP), compared to Sh8.2 trillion by the end of 2021.

PKF Kenya’s Chief Executive Officer (CEO) Alpesh Vadher said the debt accounts for both domestic and external debt stock at 48.9 per cent and 51.1 per cent respectively, which he attributed to exchange rate fluctuations.

The CEO, who was speaking Tuesday during a pre-budget media briefing at a Nairobi hotel, said according to the Kenya National Bureau of Statistics report, Consumer Price indexes and inflation rates for March 2023 were estimated at 9.2 per cent from 5.6 per cent in March 2022.

“The report has shown that a breach ceiling by the Central Bank of Kenya (CBK) with a target range of 2.5 per cent to 7.5 per cent escalated the inflation rate thereby increasing prices of food, non-alcoholic beverages, furnishings, housing, water, electricity, gas, and fuel, amongst others,” he stated.

Mr. Vadher said the organization’s aim in reviewing the current budget is to shed light on critical topics such as expert analysis of the proposed tax measures outlined in the finance bill, in-depth economic assessment, and outlook analysis.

Vadher noted that many importers have continued to face serious challenges with the availability of foreign currency despite the economy experiencing liquidity challenges, noting that CBK has maintained that foreign exchange reserves continue to provide adequate cover.

“The Central Bank of Kenya interest rate rose from a steady rate of 7.0 per cent in March 2022 to 9.5 per cent in March 2023. This is a five-year high, as it was previously experienced in 2018,” said Vadher.

He reiterated that the monetary policy committee increased the benchmark interest rate reflecting on the rise of inflation, global risks, and their impact on the domestic economy, which called for strict measures of monetary policy.

Echoing his remarks, PKF Tax Consultant James Mulili said that the government and relevant parties involved have an obligation to cushion citizens from the overall inflation rate by exempting the Liquefied Petroleum Gas and Import Declaration Fee in order to lower the cost of living.

Mulili highlighted that the proposed increase in the value added tax on petroleum products from eight to 16 per cent will negatively impact the country as there’s a huge reliance on these products as the main source of energy.

“Kenya has remained narrow, exerting the tax burden on a few taxpayers in the economy. There, however, remains a large informal sector that has remained ‘hard to tax’ and therefore is not contributing to the national tax basket,” said Mulili.

He stated that expansion of the tax base would promote equity and fairness in the tax system and recommended that the government should keep abreast of taxation measures for its subjects.

By Phinta Amondi and Emma Jolly

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