Prepare for budget cuts, ministries warned

The Treasury has announced budget cuts on non-essential items like trips, training and car expenses in an effort to curb borrowing in an economy where taxes are trailing targets.

Acting National Treasury CS Ukur Yatani Thursday told ministries and other State agencies to prepare for “brutal” budget cuts and promised to issue guidelines, including actions to be taken against those who breach the guidelines.

The items to be affected in the budget cuts include travel, entertainment, training, publicity and car costs — which set back taxpayers Sh30.1 billion in the year to June last year, up from Sh17.8 billion in 2013.

The government has been struggling to meet its revenue targets in an environment of job cuts and depressed earnings, forcing it to rump up borrowing to plug Budget deficits.

“The cuts will be brutal, sustained and with no compromise,”

Mr Yatani told a meeting to plan the Budget for the next fiscal year, adding that he expected the Budget deficit to drop to 5.6 percent of gross domestic product (GDP) in the year started July, down from 7.7 percent in the previous period.

“In the face of the slowdown in global growth, our government has adopted an all-inclusive fiscal consolidation policy package, encompassing fiscal, monetary, and financial policies,” he added.

The cuts will accompany a freeze in both hiring and pay increases as well restrictions on new development projects, which will now require Treasury approval. Treasury did not reveal how much it intends to save from the actions.

Mr Yatani singled out overseas trips by government — which often involve hefty travel allowances and huge entourages — and hospitality or entertainment spend by government departments — as examples of wasteful spending. The cuts look set to hurt sectors such as tourism, car dealers and the travel industry, including flight operators, who receive billions of shillings in ticket sales to the government annually.

Data from the Controller of Budget shows that the national government travel budget jumped to Sh15.5 billion in the year to June last year, up from Sh9.3 billion in 2014 — reflecting a 67 per cent growth over that period. The budget office is yet to release data for the year to June.

The high spend came despite a directive that bars top government officials from travelling abroad without clearance from the President. Domestic travel is also restricted.

Ministries and other State agencies increased their entertainment spend to Sh5.8 billion in the period to June last year, up from Sh3.9 billion in 2014, defying repeated calls for austerity measures to curb wastage.

The Treasury and President Uhuru Kenyatta have repeatedly pushed for cuts on non-essential spending.

The latest directive is a product of funding gaps following below budget revenue performance due to the slower economic activity that left the Kenya Revenue Authority with a Sh91 billion tax hole in the year to June.

“As a share of GDP, ordinary revenue equally has progressively declined from 18.1 per cent in 2013/2014 to 15.7 per cent in 2018/2019, Treasury data shows. This has prompted increased borrowing.

Critics have accused the government of ramping up borrowing at a rate that will saddle future generations with too much debt.

However, the government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

Kenya’s public debt as a percentage of gross domestic product has increased to 55 percent from 42 percent when President Uhuru Kenyatta took office in 2013.

The increased debt has seen Kenya commit more than half of its taxes to paying loans, leaving little cash for building roads, affordable housing and revamping of the health sector.