It was big, bold and ambitious! The 2016/17 budget was the largest ever, with a planned expenditure of Sh2.3 trillion. Budget making by the Treasury has evolved into an art in official deceit. We build an enormous, feel-good plan that glosses our over the near stagnant revenues and ballooning debt drowning the nation. Treasury no longer struggles to plug the financing gap; it merely writes it off to debt.
Each year, we craft a lofty plan without reviewing how we performed in the previous year. In 2015, government operations ground to a halt barely two months after the Sh2.1 trillion budget was approved by the National Assembly. There was a massive cash crunch; salaries could not be paid, exchequer releases to ministries dried up, transfers to county governments delayed; and the Treasury was in the red! Reason given? There were revenue shortfalls, and some large debt redemptions! How did the Treasury miss these projections in the budget?
A budget is about matching projected revenues with your planned expenditures for a specified period. Its implementation will come a cropper if either the revenues were exaggerated, or the expenditures understated, or the debt financing anticipated is delayed or is presumptive. Treasury has placed next year’s revenues at Sh1.5 trillion in the budget, up by some Sh300 billion over the current financial year. This is systematic overestimation by KRA that expects to underperform by nearly Sh100 billion in the current year.
But even assuming the revenue target is met against the planned expenditure of Sh2.3 trillion, there will be a deficit of over Sh700 billion to be financed by debt that may hit Sh4 trillion by end of next year. This excludes a standby loan facility of $1.5 billion with IMF that will be drawn if the ship starts taking in water. Treasury will tell you that it is sustainable, but is it? In 2016/17, the government will pay nearly Sh500 billion to service debts, which is a third of projected revenue. This amount is about the same as our public wage bill that is often demonised by the State.
Treasury will argue that the loans are necessary because it finances investment in infrastructure and production that will grow the economy. Facts however do not support this argument. In 2015/16, we budgeted over Sh600 billion for development but by December we had spent just over 20 per cent of it . Our absorption rate of development funds averages 45 per cent, meaning we shall have spent only about Sh300 billion. Without even factoring in our own revenues used for development expenditure, Treasury has already borrowed over Sh460 billion in the 12 months to June 30 this year. We have over 1,000 incomplete projects across the country that require over Sh3 trillion to complete. See the riddle?
In 2016/17, public expenditure will be over 30 per cent of the GDP, up from 28 per cent this year despite repeated pledges to rationalise government operations. The budget lacks austerity the government promised to embrace. Kabisa!
CS Rotich has mastered the art. For the 45 per cent of Kenyans living below the poverty line, he discusses measures to “ease the cost of living”. Kenyans, he says “expose themselves to premature death” by using charcoal, and goes ahead to reduce duties on stoves from 25 per cent to 10 per cent so that they can switch. The more the stoves, the more kerosene used; so he raises tax on kerosene by Sh6 per litre. Bingo! The poor folks should live longer! Similarly, he proposes to remove taxes on “bonuses, overtime and retirement benefits” of workers earning below Sh 12,000; which workers in this category have these benefits? Feel good!
