Calls for caution as Treasury set for Sh2.17trn Budget

Money Markets

Institute of Economic Affairs (IEA) CEO Kwame Owino speaks during the presentation of 2015/2016 Citizen's Alternative Budget at the Panafric Hotel in Nairobi on April 30, 2015. PHOTO | SALATON NJAU |   NATION MEDIA GROUP

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• There is concern that though public debt is currently sustainable, it is growing at a rapid pace at a time the economy has slowed down.
• The experts noted the increase in the county and national government expenditure by over Sh400 billion – or nearly a tenth of the GDP – in a single year was too big for a small economy. Total expenditure is expected to reach Sh1.74 trillion by the end of this financial year in June.
• Kwame Owino, the chief executive of the Institute of Economic Affairs (IEA), a policy think-tank says Kenya will be forced to turn to debt to finance the ever-rising expenditures.

The planned expansion of the Budget by a quarter to Sh2.17 trillion in the next fiscal year is too ambitious and will unnecessarily balloon the public debt, experts have warned.

There is concern that though public debt is currently sustainable, it is growing at a rapid pace at a time the economy has slowed down. Gross domestic product (GDP) in 2014 shrunk to 5.3 per cent from 5.7 per cent the previous year.

READ: Kenya growth shrinks to 5.3pc on tourism, agriculture slump

The experts noted the increase in the county and national government expenditure by over Sh400 billion – or nearly a tenth of the GDP – in a single year was too big for a small economy. Total expenditure is expected to reach Sh1.74 trillion by the end of this financial year in June.

“Our Budget is growing too big, too fast. Spending almost Sh2.2 trillion is not justifiable. How can we increase the Budget by the amount we are using in constructing the standard gauge railway?” said Kwame Owino, the chief executive of the Institute of Economic Affairs (IEA), a policy think-tank.

Mr Owino said Kenya would be forced to turn to debt to finance the ever-rising expenditures. He noted there was little room to increase public debt by borrowing from foreigners given the shilling had depreciated, making such loans expensive.

“What we are left with as a source of money to fund such a big Budget is domestic borrowing. Although we say that banks have enough money to lend to the government, the price we would have to pay is higher interest rates for the private sector,” he said.

Mr Owino noted that the Budget has little room for discretionary expenditures because of existing commitments in terms of wages, public debt, constitutional offices and pension.

“There is very little flexibility in the Budget. Privatisation should be taking place. We are paying a lot of money to parastatal staff, yet we don’t need to keep these companies as public entities. Why should we continue, for example, having sugar companies that are a drain on national resources?” he asked.

John Mutua, programme officer for Budget at IEA, said the Controller of Budget ought to give ceilings on the wage bill as many counties were employing staff for no good reason.

Donors have been slow in releasing funds for the Budget programmes, showing that the amount factored for spending is achievable, opined Mr Mutua.

A recent edition of the Kenya Gazette showed that though Sh10 billion is expected in terms of grants by June, only Sh4.4 billion had been received by the end of March.

While grants from the African Union Mission in Somalia are supposed to reach Sh6 billion, only Sh3.5 billion had been sent by the end of a nine-month period. The target for foreign loans was Sh14.3 billion, short of the Sh36.2 billion target set for the end of the financial year in June.

Mr Mutua said given that even revenue projections may be difficult to achieve, it was necessary to focus only on priority expenditure and cut spending on foreign travel, vehicles, hospitality and hiring.