Ruto moves to avert government collapse, unveils austerity budget

President William Ruto signs the Appropriations Bill into law at State House, Nairobi. [PCS]

President William Ruto on Friday moved to avert a financial crisis for his administration as he assented to the Appropriations Bill but directed the National Treasury to draft a supplementary budget to cover the revenue shortfalls brought by the rejected Finance Bill 2024.

As the legal budget deadline looms, the president maintained that his government will slash planned expenditures as outlined in the Finance Bill by Sh346 billion.

Dr Ruto, whose contentious tax plan was widely condemned following public protest, said he had rushed to satisfy constitutional budget approval deadlines by reluctantly signing off on the 2024/25 Appropriations Bill to keep State operations running and avoid a financial meltdown in the financial year starting July 1.

However, the president maintained his administration will spearhead severe budget cuts in a subsequent supplementary budget as his government races to appease angry citizens but also avert a budget crisis that threatens key services across the country.

“On Wednesday 26th June 2024, I declined to sign the Finance Bill 2024 consequently sending a memorandum to the National Assembly rejecting all clauses of the Bill,” said Ruto. “Articles 221 and 222 of the Constitution require that the Appropriations Bill be assented to by the 30th of June every year to guarantee the continuity of government operations, especially in providing critical services.”

“I have therefore assented to the Appropriations Bill 2024 and instructed the National Treasury to immediately prepare supplementary estimates to reduce expenditure by the amount of revenue that was expected to be generated by the rejected Finance Bill 2024.”

The Treasury was immediately instructed to slash Sh346 billion from expenditure plans, equal to foregone revenue from the defeated tax proposals.

The planned legal route out of the financial mess that the promised withdrawal of the Bill is likely to face scrutiny from angry protesters who rejected it in totality. But experts said the president’s options were limited in the wake of a slim window to comply with constitutional timelines ahead of the financial year that starts in July.

“The Financial Year 2024/25 Budget was to be funded through additional revenue measures amounting to Sh346 billion contained in the Finance Bill, 2024, which the president declined to assent to. This has created a financing gap of a similar amount and implies that funding of expenditures to the tune of Sh346 billion is now not tenable,” said Treasury.

“In view of this, the National Treasury working with all Ministries, Departments and Agencies (MDAs) will cut down the FY 2024/25 Budget across all activities to close the financing gap of Sh346 billion to align the Budget to the Revised Fiscal Framework.”

Dr Abraham Rugo, the International Budget Partnership’s Country Manager for Kenya, said the route ahead for the National Treasury will be key as its balances where to effect austerity measures in the new budget plan.

National and county authorities must now share the burden of cuts, with the Executive, Legislature, Judiciary and commissions tightening budgets at the regional level, in the President’s new plan.

In the new Ruto plan, the county allocation Bill was also returned to lawmakers for amendments in light of dimmed revenue prospects.

“The reduction in expenditure, amounting to Sh346 billion, will be borne equitably by both levels of government – the national and county governments,” Ruto said.

Economists warn the fresh austerity risks hampering access to healthcare, education, infrastructure and other social services relied on by citizens.

With the economic outlook already weighed down by inflation, the policy U-turn injects fresh uncertainty. All eyes are on how the shortfall will be addressed.

In withdrawing the previous plan to raise taxes, Ruto sought to appease outraged citizens opposed to tax increases as inflation worsens poverty. The route he has taken is however likely to face fresh scrutiny from angry protesters, said analysts. 

Experts also warned counties and key state departments implementing critical projects face losing out the most as budgets are cut. Funding devolved services is now at risk, from healthcare and education to infrastructure projects crucial for rural development.

Treasury said accounting officers are directed to limit the spending of the FY 2024/25 Budget to only critical and essential services.

Counties will feel the pinch as many rely on government disbursements which are set to shrink.

Crucial national projects may also be delayed or cancelled if austerity cripples implementation, hitting contractors and suppliers.

The government is now racing to reallocate diminished resources and coordinate services across key State departments. Failure to resolve severe shortfalls could see some agencies lose out disproportionately.