Broke Treasury targets Sh161bn budget cuts

A cash hitch has compelled the Treasury to announce further cuts in the allocation for development projects to plug a Sh161 billion Budget hole, a move that will hurt job creation and upgrade of infrastructure projects.

Treasury Secretary Ukur Yatani has told Parliament that last year’s Budget cuts for lavish travel, advertising and trainings, which the State said were examples of wasteful spending, had failed to yield enough savings to fix the Budget deficit.

This has left him with no option but to turn to cash allocated for development projects for the current year ending June. Development projects are a key driver of economic activities and new jobs.

Fiscal gaps have been accompanied by a consistent failure by the Kenya Revenue Authority (KRA) to meet the government’s lofty revenue collection targets in a soft economy.

“The National Government’s estimated net issues for FY 2019/20 of Sh1,416 billion… are not fully funded — the proposed budget contains a Sh161 billion gap, the bridging of which will require further expenditure cuts of a similar magnitude,” Mr Yatani says in the 2020 Budget Policy Statement, which forms the basis for the Budget for the year starting July 2020, that was tabled in the National Assembly. “The scope for these cuts exists only in the development budget and to a small extent in other ‘O&M’ (operation and maintenance).”

The government remains the biggest buyer of goods and services and increased project spending has an effect on economic growth, which is projected at less than six percent this year. This has the effect of putting money in private hands through demand for raw materials, which ultimately creates new jobs and sales for corporate Kenya.

Mr Yatani’s revelation comes barely three months after the Treasury in early December successfully lobbied lawmakers to raise the projected expenditure for capital projects by Sh73.4 billion for the current fiscal year.

The additional funds were to be spent on President Uhuru Kenyatta’s “Big Four” Agenda — which seeks to boost manufacturing, food and nutrition security, affordable housing and universal health coverage — and enablers such as roads and power transmission lines.

“What seems to materialise this year is that progress in implementation of some of these Big Four projects has been slower than expected,” said London-based David Cowan, the chief economist for Africa at Citi Bank, during an interview in Nairobi on Friday.

“That’s why I don’t think you are going to see six percent growth (as projected by the Treasury) for 2020. We are hoping these guys (Treasury) get the spending out of the door in the first half next fiscal year or second half of this calendar (July-December), which will push growth to 5.3-5.5 percent at end of this calendar. ”

Reduced spending on development projects such as roads, water, power plants, bridges, real estate and electricity transmission lines slows down economic activities, further hurting government revenue.

Cement makers, steel manufacturers, contractors and the thousands of workers employed in the infrastructure pipeline benefit from public spending and usually feel the pinch of a drop in public expenditure on development.

Mr Yatani had in September pledged to sustain “brutal” spending cuts in a bid to contain rising debt costs amid underperforming revenue.

As part of the measures, the Treasury issued a directive compelling all government agencies to purchase only locally-manufactured furniture fittings. It also ordered public offices to cut the purchase of new furniture by 75 percent over the next three years.

Further, the Treasury ordered that all government-sponsored trainings be conducted in the country and particularly at the Kenya School of Government and other training institutions.

It also cut the size of government delegations travelling abroad with Cabinet Secretaries required to have an entourage of not more than four persons, including themselves, while Principal Secretaries and CEOs of State firms are only allowed to have a delegation of three members, including the team leader.

The austerity measures were also extended to domestic air travel where State officers were restricted to purchase economy class tickets.

That has, however, offered little savings with a slash on development expenditure for the current fiscal year— earlier estimated at Sh374.2 billion compared with Sh262.2 billion in the year before — now emerging as a realistic option.

The Sh306.3 billion earmarked for government operations and maintenance will also be shaved slightly.