Treasury on the spot over Sh78bn budget inflation

A parliamentary unit which advises lawmakers on financial, budgetary and economic matters has raised the red flag over a Sh78 billion increment in the budget for the financial year starting July above the approved ceilings.

The Parliamentary Budget Office (BPO) has warned that such an upward adjustment may widen the deficit in the budget resulting in increased borrowing or growth in pending bills and stalling of budgeted projects.

In its analysis, the BPO says the Sh3.08 trillion budget estimates for 2019-20 fiscal year, tabled by Treasury secretary Henry Rotich on April 30, overshot the ceilings in the Budget Policy Statement (BPS) by Sh78 billion.

“The National Treasury is required by law to take into account resolutions passed by parliament when preparing the budget estimate for a given year. In the 2019/2020 budget, it is observed that most of the sectors did not adhere to the ceiling set by parliament in the BPS,” the unit says in its report on the estimates.

Ministries under the Social Protection, Culture and Recreation Sector which comprises Sports Development, Arts and Culture, Labour, Social Protection, Special Programmes and Gender Affairs were found to have deviated the most from ceilings approved by the National Assembly in February.

The sector’s budget, the BPO says, has been increased by Sh12.73 billion, or 23.22 percent, over the Sh54.81 billion in the BPS.

This was followed by General Economics and Commercial Affairs sector which covers such ministries as Trade and industry, Tourism and East African Affairs which have been allocated Sh5.38 billion, 22.49 percent, more than the Sh23.94 billion ceilings.

The budget for ministries under Environment Protection, Water and Natural Resources has been increased 8.0 percent to Sh88.93 billion, while that for Energy, Infrastructure and ICT was varied by Sh22.03 billion, or 5.42 percent, to Sh428.83 billion.

Others with increased budget include the Parliament whose expenditure estimates have been raised 10.4 percent to Sh43.63 billion, National Security by 3.7 percent to Sh159.27 billion and Education by 2.99 percent to Sh487.54 billion.

“Many times, BPS resolutions are rarely adhered to and fail to form the basis for preparation of the budget as required by law. This has rendered the BPS a document for the willing as its role in the budget making process doesn’t seem to be fully appreciated,” the PBO observes.

The budget for Public Administration and International Relations sector which covers 13 key ministries, including the Presidency, the National Treasury, Foreign Affairs, has been cut 5.19 percent to Sh197.13 billion.

The spending plans for the Governance, Justice, Law and Order which comprises 15 sub-sectors, including the Interior ministry, Ethics and Anti-Corruption Commission and Office of the Director of Public Prosecutions, has also been chopped by 7.98 percent to Sh171.96 billion.

The Treasury usually cites budget rationalisation, increase or decrease of donor commitments, enhancement of government operation and maintenance, realignment of programmes as well as appropriation-in-aid not captured in BPS as main reasons for persistent variations, the parliamentary unit says.

Departmental committees of the National Assembly have started interrogating requests for additional funding from various state organs, a process likely to continue until end of the month.

“Committees should seriously interrogate these to determine whether the adjustments are truly justifiable,” the BPO says.

The Treasury has raised revenue targets by Sh35 billion in the estimates to Sh2.115 trillion from Sh2.080 trillion set in the BPS to accommodate the increased budgets.

“This masks the true deficit by seemingly maintaining it at the BPS level despite the higher expenditure adjustments,” the BPO warns.

The body further points that “Should the economy not perform as expected, there will be need to drastically reduce the budget through a supplementary. This undermines the credibility of the budget and is the main reason behind pending bills and stalling of projects.”

The Treasury had earlier in April rejected budgets from parastatals which had surpassed limits approved before tabling the estimates as it looks to cut fiscal deficit to 5.6 percent of gross domestic product (GDP) in the year starting July.

This will be a reduction from a projected 6.3 percent in the current year and 7.2 percent of in the year ended June 2018.

Fitch Ratings, usually invited by Kenyan authorities to assess risks in the economy, warned in the month that weak growth in revenue, largely tax receipts, presents the biggest challenge to Kenya’s fiscal consolidation plan.

Consolidation is usually achieved through minimal deficit in the budget which then lowers the appetite to borrow cash to support expenditure plans.

“A combination of structural and administrative issues has caused revenue/GDP to stagnate in recent years. Some of this is the result of agriculture being a large component of the economy and most of the non-export agricultural output coming from untaxed smallholders,” Fitch analysts wrote in the report published on April 30.