Treasury culls budget spending amid tough times

Sunday January 31 2016

Construction of the standard gauge railway in progress. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

Construction of the standard gauge railway in progress. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

By VINCENT ACHUKA
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The Jubilee Government has moved to tame its expenditure on infrastructure in the wake of tough economic times with next year’s expenditure proposals showing just a marginal increase in public spending by only 1.6 per cent.

While proposals by the Treasury show marginal increases on spending in capital investments on infrastructure development, spending on energy, security and the youth is set to rise while crucial sectors like agriculture, public administration and international relations will have to do with budget cuts.

This is as the government, which is faced with the reality that the Kenya Revenue Authority (KRA) is finding it difficult to meet revenue targets, still has to find money for the Independent Electoral and Boundaries Commission (IEBC) to administer the General Election next year.

Early this month, the electoral body indicated that it needs Sh40.2 billion for the exercise, double the Sh24 billion it spent in 2013, as it aims to increase the number of polling stations.

The public have until Wednesday next week to make submissions before the budget proposals are presented to the Cabinet for approval and submitted to Parliament by February 15. Once approved, the statement will guide the government revenue and expenditure plan for the next 12 months starting July.

Under the plan, the government proposes to increase expenditure to Sh1.78 trillion, up from Sh1.76 last year, with recurrent expenditure still taking the lion’s share of Sh879 billion, up from Sh784 billion last year.

“The total expenditure and net lending are projected at Sh2.01 trillion or 28.5 per cent of Gross Domestic Product from the estimated Sh1.9 trillion or 29.6 per cent in the current year,” says the document by the Treasury.

Development projects will take up to Sh682 billion, a marginal one per cent increase from last year, when they took Sh675 billion which was a 21 per cent jump from the previous year.

“The government has reviewed revenue projections for the financial year downwards on account of the weaker-than-expected performance to December 2015 and in line with the revised macro-economic conditions,” Treasury Principal Secretary Kamau Thugge said.

The government has been forced in the current fiscal year to reduce its spending after revenue collection by KRA fell by Sh46.9 billion.

A tough economic environment last year led to massive losses, profit warnings and job cuts.

By Friday, 20 companies listed at the Nairobi Securities Exchange had issued profit warnings, meaning that they expect their profits to fall by more than 25 per cent. And while the NSE represents just a fraction of the companies operating in the country, analysts have time and again warned that poor performance of listed companies is an indicator of overall poor performance of the macro-economic environment in the country.

The leading economic indicators for the last quarter of 2015 tilted towards loss as a strengthening dollar, insecurity, high interest rates and high costs of production hit businesses hard, leading to an economic slowdown.

RECURRENT EXPENDITURE

Lower profits by businesses have far-reaching implications on the government’s ability to meet its development agenda or fund its huge recurrent expenditure as corporation tax is among the biggest sources of revenue for the KRA.

Businesses in Kenya pay up to 38 per cent of their earnings as tax.

To cushion itself from revenue collection shortfalls, the government has proposed to once again borrow expensive medium-term debt from international capital markets similar to the now controversial Eurobond.

“The government’s borrowing plans remain anchored on the medium-term debt management strategy, which aims at ensuring public debt sustainability,” says the plan.

“We also remain committed to accessing international capital markets with a view to continued diversification of our funding sources in order to reduce pressure on the domestic borrowing market.”

Under the new proposal, government spending on energy is set to rise by eight per cent to Sh404 billion while spending on security is set to rise by 4.5 per cent to Sh117.2 billion.

“Increase in capital investments in energy, infrastructure, ICT sector and other development expenditure in general reflects the priority assigned in our growth objectives,” said Mr Thugge.