Development hard hit as State reduces spending by Sh122b

Budget briefcase during the reading of the Budget Highlights on June 13, 2024. [Boniface Okendo, Standard]

Many infrastructure projects that the government had embarked on and expected to continue over the current financial year are likely to stall following a major reduction in development spending for the next 12 months.

The National Treasury in the supplementary budget for the 2024/25 financial year has proposed a reduction of Sh122 billion on development expenditure.

Treasury has prepared the new budget to cater for expected revenue shortfalls following the rejection by Kenyans of new and additional tax measures contained in the Finance Bill 2024.

The measures in the bill, which Kenyans rioted over describing them as punitive and insensitive to their plight, were expected to enable the government to net an additional Sh344 billion. 

In its absence, the government has had to reduce spending, but this has not been adequate as it will also resort to borrowing more than it had earlier planned. 

In the supplementary budget, Treasury reduced the overall budget to Sh3.87 trillion from Sh3.99 trillion, a 3.1 per cent reduction. 

“The drivers of these changes include a reduction in Sh122.4 billion and Sh34.1 billion in development and recurrent expenditures, respectively,” said the report by the Budget and Appropriations Committee in a report presented in Parliament Tuesday this week.

It added that the Treasury could run afoul of the law as the reduction in the development budget will result in its going below 30 per cent of the entire budget as prescribed by the law. The Public Finance Management Act requires that development expenditure be at least 30 per cent of the national budget.

“The Sh122.4 billion expected reduction in development expenditure is targeted at projects that are financed through the exchequer... the Committee noted that development expenditure as a share of GDP has reduced from an annual average of 6.3 per cent between 2010 and 2020 to 3.2 per cent in the 2024/25 financial year revised estimates. This translates to 28 per cent of the total budget contrary to the provision of the PFM Act that development expenditure shall not be less than 30 per cent of the total proposed expenditure,” read the report.

Following the withdrawal of the Finance Bill, the Treasury has now reduced the revenue collection target for KRA to Sh3.06 trillion, from the earlier ambitious target of Sh3.34 trillion. This translates to a 9.8 per cent reduction, or about Sh286 billion. 

The government will also borrow more to cover the projected shortfall in revenue collection. In the supplementary budget, Treasury said it will borrow Sh761 billion over the 2024/25 financial year, an increase from Sh597 billion that it had planned to borrow in the earlier budget. This will see the fiscal deficit as a share of GDP increase to 4.2 per cent from 3.3 per cent.

The committee also called out State agencies that have continued splashing funds on non-essentials, casting doubt as to whether the austerity measures that Ruto has been pushing will yield much.

“The Committee noted that despite the fiscal constraints, a section of government agencies namely parastatals and other SOEs have not been participating fully in austerity measures. This has allowed these agencies to continue incurring non-priority expenditures while the rest of government including counties face expenditure cuts occasioned by the withdrawal of the Finance Bill, 2024,” the committee said.