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"id": 246595,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/246595/?format=api",
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"type": "speech",
"speaker_name": "Mr. Kimunya",
"speaker_title": "The Minister for Finance",
"speaker": {
"id": 174,
"legal_name": "Amos Muhinga Kimunya",
"slug": "amos-kimunya"
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"content": " Mr. Speaker, Sir, for the first time in two decades, we have been able to increase our per capita income over three successive years. This performance is not an accident. It reflects the policies that this Government has implemented since it came to power. It is a demonstration of our commitment to pursue the right economic policies to achieve rapid and sustainable economic growth. This is critical for ensuring increased employment for our youth, a sustainable reduction in poverty and generating the resources that can be used to reduce income; regional as well as gender inequalities. Mr. Speaker, Sir, despite this good economic performance, we recognise that more needs to be done to reduce poverty. Also the gap between the rich and the poor members of our society remain unacceptably high. This is why we need to dedicate ourselves to strive even harder to reach growth targets that will ensure that we win the war against poverty. In this context, therefore, the Government is committed to continue addressing poverty and unemployment challenges by implementing the reforms described in the Medium Term Budget Strategy Paper of 2006, which has already been circulated to hon. Members. In particular, we will continue to focus on implementing sound macro- economic policies which are key elements in creating an enabling environment for private sector- led growth, far-reaching structural and sectoral reforms aimed at enhancing efficiency of resource utilisation, and additional measures to strengthen governance and reduce waste and losses due to corruption. Mr. Speaker, Sir, the Government's vision for the future is to build a strong, cohesive and prosperous democratic country for our youth and generations yet to come. This will require our continued hard work, patriotism and, above all, a shared development vision. In this regard, allow me to commend all Kenyans for their contribution to the significant progress we made towards larger political freedom and democracy since 2002. In the journey so far, we made our mistakes. We have also had our fair share of scandals. But more importantly, we have learnt vital lessons on the way forward. Mr. Speaker, Sir, this year's Budget aims at consolidating the gains we have painfully achieved, while taking into account the lessons learnt over the last three years. It also aims at investing in programmes to achieve a prosperous new future; a new future with more wealth for our people, increased employment opportunities for our youth, more equitable distribution of the national resources and reduced poverty. Mr. Speaker, Sir, having spent the last three years implementing key measures in our Economic Recovery Strategy, our economy has now reached a turning point. After years of stagnation, the economy is now poised for sustained economic growth and development. We must, therefore, develop and put in place frameworks in each of our priority areas that will take us to the prosperous future we all yearn for. The Budget for 2006/2007 is the first of those frameworks that June 15, 2006 PARLIAMENTARY DEBATES 1401 seek secure solutions for our future challenges today. For this reason, the theme of this year's Budget is: \"Frameworks for the Future Laying the Building Blocks.\" Mr. Speaker, Sir, before I go into the main substance of my Budget proposals for 2006/2007, allow me to say a few words on the recent international and domestic economic developments. On the international front, the growth of the world economy in 2004/2005 demonstrated continued momentum and resilience despite higher international oil prices and natural disasters. The world output expanded by 5.3 per cent and 4.8 per cent in 2004 and 2005 respectively. In 2006, overall global economic growth is projected to remain strong at 4.9 per cent, aided by continued benign financial market conditions and the pursuit of appropriate macro- economic policies across the world. Mr. Speaker, Sir, the African region has also experienced strong growth with real Gross Domestic Product (GDP) expanding by 5.2 per cent in 2005. It is expected to grow further by 5.7 per cent in 2006. Mr. Speaker, Sir, on the domestic economy, I will be very brief on my comments on recent developments in this sector. I, however, encourage hon. Members to read the Economic Survey of 2006 which has already been tabled to be circulated to them for more detailed information. It is heartening to note that the bold measures we have painstakingly implemented over the last three years have begun to pay dividends. As I noted earlier, our economy is now enjoying a broad-based expansion that we have not witnessed in decades. The improved performance has been driven by strong growth in key sectors of the economy, such as agriculture, manufacturing, tourism, building and construction and transport and communications. As a result of this growth, 1.4 million new jobs have been created over the past three years. Mr. Speaker, Sir, with regard to inflation, the combination of sound monetary and fiscal policies, better weather conditions starting in April this year, as well as a firm shilling exchange rate, have helped ease overall inflationary pressures. We have, in consequence, managed to bring down the annual inflation to about 13 per cent as of May, 2006. Mr. Speaker, Sir, interest rates on Treasury Bills were stable throughout the first half of 2005/2006 with a 91-day Treasury Bill rate remaining within the range of 8 per cent to 8.5 per cent. However, reflecting continued fiscal discipline and a confidence by market participants that Government will contain its borrowing requirements, the 91-day Treasury Bill rate declined gradually in the second half of 2005/2006 to around 6.7 per cent by mid this month (June, 2006). Lending and deposit rates stabilised at around 13 and 4 per cent, respectively. This means that the interest rate, although it was narrowed, remained unacceptably high by international standards. We are considering putting in place corrective measures which will increase effective competition and, thereby, improve efficiency in financial intermediation. Mr. Speaker, Sir, on the external front, our trade deficit widened during 2005 as strong growth in imports outstripped the increase in exports. The strong growth in inputs is attributable to higher oil prices and purchases of three aircraft by the Kenya Airways. However, on account of large in-flows of remittances and sizeable financial in-flow, our overall balance of payments remains comfortable. The result of this has been an appreciation of the Kenya Shilling exchange rate and a significant build-up of official foreign exchange reserves in the Central Bank to over US$2 billion, compared with just US$1 billion in December, 2002. Mr. Speaker, Sir, we have noted the concerns raised by exporters regarding the strong shilling. We are, in this context, closely monitoring developments in this area to ensure that our goods and services remain competitive in the region and internationally. Turning to the medium-term priorities and fiscal strategy, as I have already indicated, despite the strong growth performance in the last three years, poverty and unemployment 1402 PARLIAMENTARY DEBATES June 15, 2006 challenges still remain. To substantially reduce poverty and further the income and regional inequalities and move decisively towards achieving the Millennium Development Goals, our economy must expand on a sustained basis by around 7 per cent per year. This is our medium-term objective which we believe is achievable. Mr. Speaker, Sir, we believe that the strategy that we have adopted of sound macro- economic and structural policy, the shifting of resources towards social and economic sectors and fighting corruption will contribute towards achieving this objective. Mr. Speaker, Sir, although rapid economic growth is central to reducing poverty and inequality, it must be accompanied by specific Government interventions to ensure that the poor also benefit. Accordingly, to ensure that the expected growth will be shared, the combined share of resources I am allocating to health, education, agriculture and rural development, and to infrastructure will rise from 60.7 per cent in 2005/2006 to 62.7 per cent in 2006/2007, and will rise further to 66.5 per cent in the next year, 2008/2009. This is a continuation of our policy to put our fiscal house in order by restructuring our expenditure towards priority areas that were spelt out in last year's Financial Statement. In addition, the Government will continue to implement core poverty programmes countrywide. In this regard, the non-wage components of core poverty programmes will be maintained at 4 per cent of GDP. Expenditures on this programme will, therefore, rise from Kshs78 billion in 2005/2006 to Kshs86 billion in 2006/2007, representing a 10.6 per cent increase. Mr. Speaker, Sir, a stable macro-economic environment must be supported by structural reforms in order to more efficiently allocate our scarce resources. Therefore, to ensure effective public service delivery, including Budget implementation, the Government will deepen priority, structural reforms in the areas of Governance, public expenditure and financial management, revenue administration, public enterprises management, financial inter-mediation and private sector competitiveness. These reforms will improve the business environment to facilitate private sector growth and create employment for our youth. Mr. Speaker, Sir, while the projected economic growth will provide us with the resources to advance our development objectives, sound fiscal policy management remains central in ensuring that we continue to do so in the future. We will, in this regard, continue to pursue fiscal policy management aimed at maintaining a strong revenue effort, restraining the growth of total expenditures while ensuring a shift in its composition from non-productive recurrent expenditures to operations and maintenance and capital expenditure, and to containing growth of domestic debt to a sustainable level. Mr. Speaker, Sir, last year, my predecessor wisely excluded bilateral budgetary support from the 2005/2006 Budget. By so doing, we have managed to introduce predictability in our Budget process and line Ministries can now plan on the basis of more certain, albeit smaller, resources. This year, we are going a step further by also excluding all multi-lateral budgetary support."
}