Does Kenya really need to spend the extra Sh280 billion?

By Rishab Thakrar and Gladys Makumi

Nairobi,Kenya:Huge gap: The Sh280 billion budget deficit is equal to the entire national budget of the Republic of Burundi

The Government has historically increased its annual budget since independence, and with a growing population, economy, and increased development, this is justified.

But at some point it’s time to stop and take a moment to think whether or not we can actually afford it. When asked on economic and national development, capitalists will always respond with an answer based around spending to generate monetary movement and positive spending both on part of governments and populations. We all know that spending is good and that it can move an economy forward; however haven’t we learnt the importance of considering affordability?

In 2009, the Euro-zone entered the first of a multi stage economic crisis that led to the disappearance of years of economic growth and effort. Historical mismanagement of public debt, ease of lending and speculating investors all contributed to the major economic decline from 2009 through 2012, the effects of which are still felt globally.

Not only did the crises lead to economic reform and multiple bailouts from stronger EU nations such as France and Germany, but also more importantly to social unrest and political reform leading to considerably conservative governments and economic policies. Unlike the nations in the Euro Zone, Kenya does not have common currency sharing neighbors to save it, nor does it have global banks willing to purchase major stakes in its debt with various restructuring options, were it to find itself in such a position.

Interest expenses

The 2013 Kenyan National Budget of Sh1.6 trillion is the largest budget Kenya has seen to date. With bigger scope, more vision, and extensive promises to the public, the new government has a lot to prove both politically and economically.

Of course Kenya is richer than it was last year, and the same (should) go for the Government. However based on the estimated expenditure of over Sh1.6 trillion and estimated revenues of over Sh1.3 trillion, there lies an outstanding estimated deficit of approximately Sh280 billion. To the naked eye, Sh280 billion is just a figure, and although it represents over 16 per cent of the overall budget, it has little meaning until some perspective is applied. To give it some scale, consider the following:

Sh280 billion represents two times the budget allocated to the Ministry of Education, four times the budget allocated to the Ministry of Defence, and eight times the budget allocated to the Ministry of Health.  Moreover, the deficit is equal to the entire national budget of the Republic of Burundi. Having said that, we must consider that the population and capital requirements of Burundi are significantly less than those of Kenya; however we must also realise that Sh280 billion is not a small amount of money, nor is it going to appear overnight, or come for free for that matter.

Interest expenses for 2013 are estimated to amount to over Sh121 billion. In scale, this is equivalent to the budget allocated to the Ministry of Transport and Infrastructure. This urges one to ask, do we really need an extra Sh280 billion and can/will we be able to afford interest payments on it? Although difficult to answer without a series of assumptions and calculations, it is clear that Government and budget committees alike should consider the financial future and the importance of affordability in that regard.

It is thus necessary for the aforementioned to take some serious time to consider where they plan to get Sh280 billion from, and how they will pay for it. With so many mistakes to learn from globally, it would be a shame were Kenya to find itself in a situation whereby it would not be able to pay off its interest and principle payments to its own public, let alone other nations and institutions.

Furthermore, whenever confronted with a situation of a budget deficit, the Kenyan Government historically and conveniently brushes off the situation by claiming not to have needed to spend more than they had earned as revenue, essentially suggesting mismanagement of funds and irrelevant estimations.

Realistic budgets

This poses a very relevant question on part of the Kenyan people; who is going to get less funds than they were initially allocated? So as much as the Government needs to consider where they will find the funds to supply the deficit if they really use it, it is critical for them to consider realistic fund management and budget allocation in order to allow ministries and government bodies alike to organise their projects and promises to the nation accordingly. The new Government consists of many professionals who expect to run their respective ministries efficiently and professionally.

Exaggerated budgets and misrepresented fund allocations are not what Kenya needs to move forward. The newly formed budget committee and Government really need to start considering how realistic their budgets are, where the money is going to come from, the affordability of non-revenue funds, as well as the feasibility and realistic applicability of the promises they make to the Kenyan people.

—Thakrar is a business analyst and Gladys is a director both in the Financial Advisory line of Deloitte EA. The opinions expressed here do not necessarily represent those of Deloitte EA.