Greetings and welcome to the third Money Weekly Roundup of 2024! 

This week, the National Treasury disclosed that close to 60% of all tax revenue collected in 2023 was used to service loans. With the $2 billion 2014 Eurobond maturing on June 24, this shows Kenyans need to tighten their belts further as higher loan repayments are anticipated.  

This is as the Kenya National Bureau of Statistics (KNBS) is revealing that Kenyans have cut spending on highly taxed products to cope with the high cost of living. This has contributed to Kenya Revenue Authority (KRA) missing its tax revenue collection targets.

As always, we’ve included some of our favourite finance tips to help you get financially started this new year in our finance tips section below.

Let’s dive in!

NEWS RECAP

What happened this week

🤑 Debt Servicing Gobbles Up 60% of Govt Revenue

According to the National Treasury, the country spent nearly 60% of its Ksh1.05 trillion revenue in 2023 to settle debts. Analysts predict that Kenyans will have to tighten their belts further as an even bigger percentage of revenue could end up being directed towards debt payment this year. 

Here are few things to know:

• Debt Repayment and Revenue Allocation: Ksh600.73 billion out of Ksh1.05 trillion in total tax revenues was used to service debt. Only 43% of revenue remained for development, salaries, and public service operations.

• Government's Financial Situation: Total public debt obligation for FY 2023/24 revised upwards to Ksh1.866 trillion from the initial estimate of Ksh1.75 trillion. The administration signals higher loan repayments due to shilling devaluation.

• Expenditure Allocation and Challenges: 89.9% of exchequer allocations from the Consolidated Fund went to servicing public debt. Pension disbursements totaled Ksh59 billion, and Ksh8.3 billion was allocated for public servant salaries.

• External Financing and Debt Relief: Govt plans to secure external financing to clear part of the maturing Eurobond debt. Over $12 billion (Ksh1.84 trillion) is anticipated through the World Bank's concessional window in the next three years.

• Liquidity Challenges and IMF Loan: While Kenya faces liquidity challenges and  uncertainty about accessing funding before the Eurobond matures in June, a Ksh150 billion IMF loan has inspired confidence, leading to a drop in Eurobond yields.

Despite using most of the taxes to pay off debt, Kenya is not yet halfway in repaying the total debt obligation (Ksh 1.866 trillion) for the current budget cycle ending in June 2024. Read More. 

📈 Unit Trusts Assets Cross Ksh200 Billion on High Returns

Total assets under management held by unit trusts or collective investment schemes surpassed the Ksh200 billion mark for the first time in September 2023, reaching Ksh206.6 billion. The growth in assets has been supported by double-digit returns on investment vehicles amid a general rise in interest rates.

• The highest increase in assets - GenAfrica Unit Trust Scheme experienced the highest increase in assets during the quarter, rising by 237.8% to Sh212.4 million.

• Other schemes - Other schemes with significant asset growth include the Enwealth Capital Unit Trust Scheme, the Britam Unit Trust Scheme, and the Etica Unit Trust Scheme.

• Largest collective investment scheme - CIC Unit Trust Scheme remains the largest collective investment scheme by assets, holding a 29.6% market share with Ksh61.1 billion.

The Capital Markets Authority (CMA) had licensed 29 unit trust schemes as of September 2023, with Mayfair Asset Managers being the latest entrant. Read More.

💪 World Bank Upgrades Kenya’s 2024 Growth Projection

The January 2024 global economic prospects report by the World Bank projects Kenya's economy will grow at 5.2% this year, as compared to an earlier projection of 5.0% last year, after an upgrade from 4.8 per cent in 2022.

The upward projection attributed to fading inflationary pressures and eased financial conditions. However the lender cautions that the outlook is subject to several risks including political instability, global economic slowdown, trade disruptions, and adverse weather events.

• Regional Comparisons: Kenya's growth prospect (5.2%) is considered weaker compared to Tanzania (5.5%) and Uganda (6.0%) in 2024. Sub Saharan Africa's growth is projected to accelerate to 3.8% in 2024 and further to 4.1% in 2025, up from 2.9% in 2023. Read More.

🏭 Manufacturers Raise Prices Amid Rising Costs

In the year to December 2023, manufacturers raised prices by an average of 9.1%, according to KNBS data. Some of the reasons for this upward adjustment is the rise in electricity costs by up to 63% in April 2023, as well as the depreciating currency and muted consumer demand. 

The rise in the cost of production was passed on to consumers:

• Processed foods saw an average price increase of 2.01%

• Drinks saw an average price increase of 8.39%

• Tobacco products saw an average price increase of 9.52%

• Chemical products saw an average price increase of 30.94%

• Vehicle assembly saw an average price increase of 7.4%

• Electrical Equipment saw an average price increase of 15.6%

Only manufacturers of textiles, apparel, and paper decreased prices by 0.98%, 6.4%, and 0.57%, respectively. Read More.

✂️ Kenyans Spend Less on Highly Taxed Items

According to KNBS, the consumer price index reached a record high of 137.55 points in December 2023. This results from government tax measures, including 16% VAT on fuel, a housing levy, an increase in health coverage deductions, and a rising cost of living.

This has led to Kenyans adopting cost-cutting measures such as:

• Reducing consumption of basic goods,

• Using solar energy to avoid high kerosene costs,

• Limiting mobile phone calls while favouring text messages,

• Relocating to cheaper houses

These cost-cutting measures are seen to have contributed to the Kenya Revenue Authority (KRA) missing its tax revenue collection targets. Read More. 

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MONEY TIPS & TOOLS

This week’s finance tips

Welcome to Money254's Money Tips! Here, we share quick and easy tips that make understanding and managing your money a breeze. We break down the tricky parts of your finances and the financial landscape, making it simple and clear for you. Stay tuned for helpful tips every week.

MONEY254 #MONEYTOK OF THE WEEK

Retiring Early in Kenya

Although achieving early retirement demands substantial sacrifices, it's not an insurmountable feat. In this week’s video, we delve into actionable strategies that can increase your chances of realising the dream of retiring early.

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Tips to Achieve Early Retirement in Kenya. While desirable by most, early retirement will require quite a great deal of sacrifice on your ... See more

That’s a wrap for this week’s Money Weekly!

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Eric and the Money254 editorial team.