Kenya’s reliance on donor funds grows

Despite Kenya being ranked as a middle-income economy, half of the country’s development spending is now funded by donors.

According to a new report by the Institute of Economic Affairs (IEA) released yesterday, about 42 per cent of the country’s development expenditure is donor-financed.

The Government has in the last few years scaled down spending on development as debts pile up and the public wage bill rises, eating up huge chunks of the budget.

Overreliance on development partners, IEA said, has led to low absorption of funds as the money does not come in time. “The routine challenge in the absorption of funds, especially in development expenditure meant that six months into 2018/19, about Sh55.2 billion was unspent,” said the report.

The think tank urged the Government to enhance capacity on revenue forecasting and temper expected donor funds in order to address cash management and delays in the release of funds.

Rating firm Moodys has pointed out that while other East African countries are moving away from donor dependency, Kenya, which had weaned itself off development partners, is running out of options.

“Fiscal deficits in Uganda, Rwanda, and Tanzania have been smaller, averaging between three per cent and four per cent of GDP,” said Moodys in a recent report.

The smaller deficits in part reflect a larger share of grants in the three countries, although grants as a percentage of GDP have particularly been declining recently in the latter two countries.

In Rwanda, for instance, grants finance only account for about one-fifth of total development spending. It is no wonder that the World Bank just recently approved a $750 million (Sh75 billion) loan to Kenya for budgetary support.

Last year, Treasury also admitted that counties were being kept afloat on donor funds as the Kenya Revenue Authority struggled to collect taxes.

Data released in December showed that donor funds to the 47 counties helped Treasury save face after the Exchequer fell behind in tax collection.