Kenya told to cut ballooning budget and borrowing

Money Markets

Treasury secretary Henry Rotich poses outside the National Treasury building on his way to read the 2015/2016 Budget statement in Parliament on June 11, 2015. PHOTO | SALATON NJAU  

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• Total expenditure is estimated to rise by Sh300 billion, or 17.6 per cent, in the next fiscal year even though the country’s absorption capacity has not changed much.
• Treasury Secretary Henry Rotich had in the BPS estimated that domestic borrowing would be Sh141.7 billion in 2015/16 fiscal year, but changed this to Sh219.2 billion in April before raising it in the statement he read last Thursday.
• In the Budget Statement read on Thursday last week, the total fiscal deficit stands at Sh570.2 billion with net domestic borrowing expected to hit Sh229.7 billion.

Kenya’s over Sh2 trillion budget is too large and should be cut in order to reduce the 8.7 per cent deficit expected in the coming financial year, a think-tank says.

Total expenditure is estimated to rise by Sh300 billion, or 17.6 per cent, in the next fiscal year even though the country’s absorption capacity has not changed much.

This has resulted in increased domestic and external borrowing which Fitch Ratings warned this week could lead to a rating downgrade if not checked.

In the Budget Statement read on Thursday last week, the total fiscal deficit stands at Sh570.2 billion with net domestic borrowing expected to hit Sh229.7 billion.

READ: Global ratings agency concerned over Kenya, Uganda borrowing

Domestic borrowing has been rising at every stage of the budgeting process beginning in February, when the Budget Policy Statement (BPS) — which sets out priorities — was submitted to Parliament.

In the Statement read last week, the borrowing rose by an extra Sh10 billion to hit Sh229.7 billion from the Sh219.2 billion set in the estimates submitted to Parliament in April.

READ: Rotich’s ambitious revenue targets signal more tax pain

Treasury Secretary Henry Rotich had in the BPS estimated that domestic borrowing would be Sh141.7 billion in 2015/16 fiscal year, but changed this to Sh219.2 billion in April before raising it in the statement he read last Thursday.

READ: Treasury to borrow Sh219.2bn from local market as revenue falls short

“Our spending is very high given our ability to absorb the money allocated. We need to increase this absorption capacity before raising spending too high. Our procurement process should also improve,” said John Mutua, a public finance expert at the Institute of Economic Affairs (IEA).

Mr Mutua said the infrastructure sector faced the biggest challenge in absorbing funds in recent years.

The Ministry of Infrastructure’s absorption was less than 50 per cent with the State Department for Infrastructure spending about 27 per cent of the funds in the first half of 2014/15.

Biggest challenge

Mr Mutua noted that the fiscal deficit was high and kept on changing with every budgeting stage — just like the net domestic borrowing.