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Unlocking investments and finance for EMDEs for Kenya. Week 2 assisngment
1. The main source of financing for Kenya are well spread between the domestic and external
sources both public and private sources.
a) The Tax Revenue as a percentage of GDP in Kenya is on a downward trend falling from
16.877% in 2014 to 15.679% in 2017. In the financial year 2017/2018 Kenya collected
$14.85 billion and this was still below the budget target for the same year. The Kenya
Debt to GDP ratio has been on an upward trend and in 2018 was standing at 57%. Kenya
is a net importer whereby in 2018 the imports as a percentage of GDP were at 23% and
exports at 13%. Foreign direct investment, net inflows (BoP, current US$) was at all time
high at $1.45billion in 2011 then went down to $393million in 2016 and picked up to $
671million in 2017. The remittances were $2.72billion in 2018 up from 65.85million in
2003 and have been on upward trajectory from the year 2013. Kenya has also utilized the
official development assistance (ODA) where total net receipt ODA amounted to USD
3291.5 million, health and population receiving 34% of the financing followed by
economic infrastructure and services at 25%. The top two donors are the United States
and International Development Association contribution 40.9% of the funds on average
in 2016-2017. ODA is 5% of GNI
44%
29%
11%
10%
3% 3%
Total Resource Receipts-2017
ODA
Personal Remittances
Portfolio Investment
Foreign Direct Investment
Other Official Flows
Officially Supported Export
Credits
Private Grants
2. b) Most promising sources of finance for the county; With the debt to GDP ratio for Kenya
rising to 57%, it is unlikely that the country can still rely on borrowing to fund
development projects. As it is issues of debt sustainability have started to arise with
Economists worried that the country is taking more debt than it can sustain. One of the
most promising sources of additional finance is domestic tax. With the tax revenue to
GDP ratio at only 15.679%, the country has an opportunity to grow the tax revenue by
deepening the tax base. This can be done by bringing under the tax net businesses in the
SME and informal sector. Another promising source of additional finance is exports of
horticulture products. Kenya can take advantage of the favorable climatic conditions to
bring more land under horticulture farming. This is to meet the expected increase in
demand after Kenya signed a deal with China for export of Avocados and other products
over and above the traditional Europe and American Market. Beyond ODA can also help
when there are specific projects to be undertaken and at the same time make choices of
donors that are going to help the country achieve its goals. Ensure that the resources are
used fully for the targeted project by fighting corruption and investing in projects that
earn returns to help on debt sustainability. Diaspora remittances have been a key resource
for the county and this will continue contributing to finance the country.