State deepens austerity with Sh100bn budget cuts

The Treasury plans to reduce spending by about Sh100 billion in the new fiscal year starting on July 1, an indication of deeper austerity measures for ministries, departments and state agencies, which have already been slapped with restrictions on non-essential expenditure.

Newly-confirmed Treasury Cabinet Secretary Ukur Yatani Tuesday said there was no room for budget deficits, which have lately been estimated at Sh600 billion — fuelled by the State’s borrowing to finance development amid unmet revenue targets.

“We are sustaining the austerity measures that we put in place this financial year. If we had a choice, maybe we would have relooked at it but we do not have much because we need money to invest in capital good, in areas that will grow the economy so that is why we will be lean on recurrent,” he told a meeting on the preparation of the 2020/21 Budget. “I am optimistic that in the coming year, we will register a fall in the budget deficit of about Sh100 billion. It requires time to move it from the Sh600 billion by the end of the next year”.

The spending cuts eyed by the Treasury are more than the Sh91 billion missed tax collection target by the Kenya Revenue Authority (KRA) in the financial period ended June last year — underlining the huge task ahead as the State grapples with the rising public deficit.

Mr Yatani said the government would particularly sustain huge budget cuts on advertising and travel by State officials.

“We must have discipline; you will not have ulcers because you have not travelled. We will continue to pursue fiscal consolidation and will only give what we can afford. What KRA collects is what we intend to use as we have exhausted other means,” he said.

The austerity measures were first announced in September last year targeting trips, training and advertisement as the State moved to curb wastage of taxpayers’s funds. 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 have been restricted to purchase economy class tickets.

Data from the Treasury shows that ordinary revenue as a share of GDP has equally been progressively declining, moving from 18.1 percent in 2013/2014 to 15.7 percent in 2018/2019, forcing the government to turn to more borrowing to plug the deficit.

Shortfalls in revenue collection have widened the country’s Budget deficit – which has had to be bridged through increased borrowing to raise funds for the government’s recurrent spending and infrastructure projects such as roads, bridges, power plants and transmission lines.

The economy is currently hurting from slow growth characterised by high job losses forcing the Treasury to cut its 2019 economic growth estimate to 5.6 percent from an initial estimate of about six percent on the back of slower growth in the farming sector.

The Jubilee administration has been accused of saddling taxpayers with huge debts, but has defended the borrowing saying that the country needs money for infrastructure, including roads and railways.

The move to cut the country’s deficit comes even after Members of Parliament last year signalled higher borrowing in future after they raised the debt ceiling to Sh9 trillion that tied public debt at half of the gross domestic product (GDP). The changes were meant to allow the Treasury to borrow more in line with the target of increasing public debt to Sh9.1 trillion in the year starting July 2023 from Sh5.7 trillion in June last year.

Mr Yatani early this month said the government plans to refinance or substitute commercial loans with cheaper options from friendly nations or development financiers.

“I also intend to restructure debt stocks by refinancing or substituting commercial elements with concessionary ones,” he said in an opinion piece published in the Daily Nation on January 6.