Kenya Finance Minister Chris Obure walks a tightrope this week when he reads the budget on Thursday June 13, with poverty alleviation, economic stability and regional integration top on the agenda.

Mr Obure faces tough choices in trying to balance a budget excluding funding from donors who, sources said, had not been involved in the budget-making process this year. 

Mr Obure had earlier said that he would not include external funds, pointing to the breakdown in relations between the government and the International Monetary Fund (IMF).

Without IMF support, there is little hope of other donors and investors supporting the economic blueprint, since they take the Fund's involvement as a green-light to do business with a country.

With Kenya's budget deficit at Ksh13.3 billion ($1.7 billion) or 1.6 per cent of the gross domestic product at the end of March, compared with Ksh11.2 billion ($1.4 billion) at the same time last year, Mr Obure is faced with three alternatives. He can either raise taxes; resort to increased domestic borrowing; or expand the tax net. "Either of these options will result in great harm to an already crippled economy,"J. K. Njiraini, the Chief Executive of the Institute of Certified Public Accountants of Kenya (ICPAK) said. 

Should he choose to have a balanced budget, vital projects as well as political expenditures, such as on the constitutional review, would have to be cut back. 

Analysts consider a balanced budget policy prudent given the hiccups experienced with donors over the last decade. The Federation of Kenya Employers, an influential lobby on policy matters, has requested that a task force comprising private sector representatives be set up to ensure donor assistance is fully utilised.

Although Kenya still craves donor aid, FKE estimates that about Ksh103 billion ($1.32 billion) of committed external resources have not been utilised because of the slow rate of implementing government projects. The failed disbursements in most cases have been the cause of growing budget deficits that push the government into the domestic money market.

With the need to reduce domestic borrowing from the current level of Ksh220 billion ($2.82 billion), increased resort to the domestic market is the last thing the minister would wants, more so given the need to stimulate the economy through lower interest rates. Increasing taxes would also be politically suicidal in an election year. Key lobby groups have recommended that taxes be reduced across the board with import duties on inputs for agricultural and industrial production being abolished.

That leaves Mr Obure with a task that many of his predeccessors have failed to accomplish widening the tax net and sealing loopholes for tax evasion without increasing administration costs. The informal sector, which remains the only sector that is virtually untaxed in Kenya, presents an ingenuous finance minister with substantial revenue growth opportunities.

The sector however is extremely disorganised, to the extent that bringing it under the tax net would involve more sweat than gain. Last year, it employed 4.6 million people whose engagements are unregulated and therefore difficult to include in the tax net.

Although Mr Obure will try to ensnare a few informal activities, improved tax administration coupled with drastic expenditure cuts seem the key fiscal measures that he will rely on to balance the budget. And that will not be made easy by high levels of corruption in and out of the civil service.

A last resort for the government would be its overdraft facility at the Central Bank. In law, the government cannot borrow more than five per cent of its last audited revenue, meaning it can only borrow about Ksh8 billion ($102 million).