Government freezes jobs and cuts perks

The Kenya Government has frozen employment, suspended development projects and slashed perks in the face of a Sh100 billion hole in its finances.

“There shall be no more recruitment of personnel for the rest of this financial year even where the necessary authority has been obtained. All approved recruitments should be deferred to the next financial year,” says a Treasury circular sent to all accounting officers two weeks ago.

Only staff in a security capacity will be hired, and all projects are on hold until the next financial year. In a sign that the government is in financial trouble, the Treasury has also ordered cuts in spending on training, office and general supplies, purchase of furniture and other equipment.

Original budget

Expenses on board meetings, conferences, seminars, workshops, retreats, refurbishment of buildings and routine maintenance of assets have also been cut by 10 per cent of the original budget.

Foreign trips by ministers and parliamentary committees are to be scaled back to save money. Finance permanent secretary Joseph Kinyua has asked accounting officers of all departments to slash spending on transport, allowances, foreign and local travel by up to 15 per cent.

As a consequence of the freeze in employment, candidates who recently sat interviews in various ministries and departments and passed will have to wait until after the June budget to know when they will be employed.

Ministries of Agriculture, Trade, Housing, Immigration and Local Government, among others, which had recently either placed advertisements or interviewed recruits will have to wait until after June to employ.

Also likely to be affected is the Sh700 million that was meant to purchase the five-storey Shell and BP House for Prime Minister Raila Odinga.

The austerity measures are evidence that the government’s spending binge has run into a wall. The difficulties arise from expenditure forced on the government by drought and it has had to import food and fertilisers, which it had not budgeted for.

A lot of money has also been spent to resettle internally displaced people, who were kicked out of their farms in the post-election violence that in itself undermined food production.

The drop in economic growth from seven per cent to under three per cent also means that the government will collect a lot less in taxes than it had hoped. The size of government — 42 ministries — is also a drain on the Treasury.

The government started the financial year with a hole in its budget of some Sh127 billion and hasn’t been able to sell off parastatals such as National Bank of Kenya and Kenya Wine Agencies Ltd, the proceeds from which it hoped to use in plugging the hole in the budget.

Because of heavy import expenditure and a drop in exports, the foreign currency reserves have fallen to less than three months of import cover, down from four months. Reserves are a measure of a government’s ability to pay for imports and meet its debt obligations.

Signs that the government was in trouble emerged when salaries for civil servants and teachers were delayed for more than a week in the last few months.

On Monday, Education permanent secretary Karega Mutahi said the government was unable to disburse Sh10 billion for free primary and secondary education because there was no money. 

Mr Kinyua said the Treasury had received requests from within government for additional funds of more than Sh100 billion. “Treasury has reviewed all the requests and allowed limited additional funds to address strategic interventions related to food crisis and other emergencies,” he added.

The PS said there was a big financial gap occasioned by the approved additional expenditure and anticipated revenue shortfall. “In view of existing demands and the need to provide for interventions by the government, it has been decided that the financial year 2008/09 budget for the items… be reduced.”

Spending on development is on hold and projects that are not likely to start this financial year should be deferred to next fiscal year. In addition, all ongoing projects, Mr Kinyua directed, should be reviewed to reflect the disbursement trends and capacity to undertake them.

Savings made from the development kitty will be surrendered to the Treasury to be used in sectors that are most affected by the shortfall.

Mr Kinyua said requests for re-allocation of funds by departments that have made the savings will not be approved. “Accounting officers are required to implement these measures with effect from the date of this circular,” the PS added.

The government said it was experiencing a cash crunch because of the post-election violence, high oil prices and the world recession. It also revealed that the economy grew by a mere 2.5 per cent in the second quarter of the financial year — October, November and December.

The government had expected the economy to grow by 4.5 per cent, there would be sustained political and macro-economic stability, increased exports and improved domestic demand in addition to structural reforms. “Demand for our exports is likely to decline, while the high oil price has triggered high cost of inputs,” he added.

The circular is copied to the Head of Public Service and Secretary to the Cabinet Francis Muthaura, the Controller and Auditor-General Anthony Gatumbu and all accounting officers.

This comes just a day after the International Monetary Fund said it could not approve a loan of $100 million (about Sh8 billion) to Kenya. The country needs to fund importation of maize and restock foreign reserves at the Central Bank of Kenya. IMF said Kenya’s request would only be placed before the board late in April or early May.

Kenya had, in January, applied for the loan through the Rapid Access Component of the Exogenous Shocks Facility (ESF), an emergency line of credit open to IMF member states going through a significant negative impact on the economy. Prime Minister Odinga had asked for the loan at a meeting in Davos-Klosters, Switzerland.

Donors have also not responded to a government appeal for food, saying they are waiting for the number of people facing starvation to be independently determined. They will also give food through the World Food Programmes and other humanitarian organisations, but not through the government.

On Tuesday, Finance minister Uhuru Kenyatta told the Nation by phone that it was critical that farmers, especially in the Rift Valley, planted enough food this season. President Kibaki was in the Rift Valley on Wednesday to launch a food production campaign.