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Why Kenya is at a crossroads as it strives to grow

Robert Maina @PeopleDailyKe

Kenya is at a crossroads as it strives to grow into an upper middle-income country by 2030. This follows the re-basing of the economy in 2014 which raised its economic status into a lower middle-income country.

There are growing demands for additional resources to finance critical economic projects. In addition, the government’s zest to improve service delivery in critical sectors of the economy including education and health is putting a strain on the limited resources available to the country.

Vision 2030 is underpinned by transformation across three pillars namely, economic, social and political pillar. The achievement of the objectives set out in Vision 2030 blueprint is pegged on the implementation of enabling policies. A strong foundation and an enabling environment is required to support the ambitious target of providing a high quality of life to every Kenyan.

Generally, the main sources of domestic resources that are readily available to finance development projects in a country are taxes and savings. The ability of the government to tap and accelerate the growth of the two sources play a critical role in determining the pace of development.

Kenya’s performance in these critical sources of domestic resources has been below par and this has contributed to the exponential growth in external public debt in the recent past.

World Bank national accounts data indicates that Kenya’s gross savings as a percentage of the GDP was nine per cent in 2017. This was lower than the average in sub-Saharan Africa which stood at 18 per cent. 

The general trend over the past 10 years is also not encouraging with savings as a percentage of GDP having declined from a high of 16 per cent in 2007. This has been blamed on the high cost of living yet income levels have either stagnated or declined in real terms for most Kenyans.

Pension funds and insurance companies usually provide a reliable source of local financing to plug the current infrastructure deficit. Savings into pension funds and other long-term investment plans therefore have a direct relationship with the level of local resources that are available to finance development projects in the country.

The taxman has rolled out revenue enhancement initiatives to boost tax collection measures.  These comprise a raft of tax policy measures that have been introduced or are in the offing to improve compliance and boost revenue collection.

Digitalisation of tax administration has also been rolled out to bring into the ambit of taxation certain segments of the society that were hitherto untaxed.  – Maina is a Tax Manager at EY. The views expressed herein are not necessarily those of EY

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