Expenditure on development projects in the first five months of
the current fiscal year surpassed the target set by the National
Treasury, pointing to increased economic activities which boost job
opportunities for the expanding unemployed graduate youth.
A
total of Sh203.1 billion was pumped into capital projects in the
July-November period, the Treasury says in the draft 2019 Budget Policy
Statement (BPS), Sh3.2 billion more than what it had targeted.
The
bulk of the cash was, however, issued in October and November after
development spending massively fell short of the Sh169.3 billion target
in the previous three months by Sh101.2 billion, the Treasury said in
the quarterly Economic and Budgetary Review for the first quarter
(July-September) last November.
That means about Sh135 billion was disbursed to various development projects in October and November.
Underperformance
in the absorption of development funds in the July-October period has
largely been blamed on President Uhuru Kenyatta’s directive to State
ministries, departments and agencies to finish projects already in
progress before initiating new ones.
“The exercise to
clean up the development project portfolio triggered by the presidential
directive on inclusion of new projects in the budget also slowed down
the uptake of development expenditures in the first quarter. This picked
up strongly in the second quarter (October-December 2018) of FY
2018/19,” the Treasury says in the draft BPS statement.
Mr
Kenyatta last July froze implementation of new projects by ministries
and other State organs until ongoing ones are completed.
He
directed that any new projects must be cleared by Treasury Secretary
Henry Rotich first, adding that officials who defy the order will be
held personally responsible.
“There will be no new
projects that will be embarked on until you complete those that are
ongoing,” the President said on July 20.
“Even if new
projects are aligned to the Big Four they cannot be started without
express authority from CS or PS of the National Treasury.”
Higher
spending on development projects such as roads, water, power plants,
real estate and electricity transmission lines stimulates economic
activities, helping create job opportunities and grow government
revenue, largely taxes.
The Treasury has not broken
down expenditure by various ministries and departments in the draft BPS
report, which will form the basis for the budget for the year starting
July.
Treasury statistics in the monthly Statement of
Actual Revenues and Net Exchequer Issues, however, shows the State
departments of Transport and Energy posted the highest absorption rate
of development funds in the five-month period through November.
The
Transport department, charged with implementing projects such as the
ongoing second phase of the standard gauge railway (SGR) from Nairobi to
Naivasha, had the highest absorption rate at nearly Sh9.4 billion, or
75.2 per cent, of the Sh12.49 billion full-year budget.
The
Energy department, which largely provides oversight in the building of
power plants and transmission, absorbed 59 per cent, or Sh13.17 billion,
of the Sh22.33 billion development cash it has been allocated in the
current financial year.
Expenditure by the Department
for infrastructure, however, remained the largest by size, with issues
amounting to Sh16.37 billion or 22.6 per cent of the Sh72.35 billion
estimates for 12 months through June 2019 to oversee such as roads and
bridges.
Others with high absorption of development
funds were Health (Sh5.42 billion of the Sh28.22 billion), crop
development (Sh3.36 billion of the Sh16.76 billion), Interior (Sh3.33
billion of the Sh16.94 billion), Basic Education (Sh2.94 billion of the
Sh9.25 billion) and University Education (Sh2.83 billion of the Sh10.31
billion).
Development spend by Department of Water and
Sanitation in the five-month period was Sh2.56 billion of the Sh23.58
billion full-year estimates, while that for irrigation and ICT stood at
Sh1.24 billion of the Sh5.79 billion and Sh1.01 billion of the Sh10.80
billion projection.
Overall, expenditure on development
projects accounted for 24.5 per cent of the Sh829.1 billion spent in
the period. That is short of the legal requirement for 30 per cent in
three to five years under section 15 of the Public Finance Management
Act of 2012.
“The government will continue with fiscal
consolidation efforts. Deliberate steps will be undertaken to narrow the
budget deficit and stabilise public debt, prioritise development
expenditures while protecting social spending and investments,” the
Treasury says in the draft BPS.
The government remains
the biggest buyer of goods and services from the private sector, and
reduced spending on projects hurts momentum in economy which is
recovering from a five-year low in 2017.
State spending puts money in private hands through demand for raw materials, which ultimately creates new jobs.
Cement
makers, steel manufacturers, contractors and the thousands of workers
employed in the infrastructure pipeline benefit from public spending and
usually feel the pinch of a drop in public expenditure on development.
Private
sector activity, as measured by monthly Stanbic Bank Kenya’s Purchasing
Managers Index (PMI), appeared to pick up towards the end of last year,
closing at a high last seen in 2014.
The headline PMI
Index — the measure of private sector activity such as output, new
orders, employment and supplies delivery times — rose marginally to 53.6
in December from 53.1 ia month earlier.
A point above
50 denotes growth in overall business activity compared to the previous
month, while a reading below that mark denotes a contraction in activity
undertaken by firms.
“The Stanbic PMI closed the year
strongly, recording the highest average since 2014. We believe that GDP
growth remains on track to test 6.0 per cent year-on-year in 2018 and
furthermore the good weather conditions in …(quarter four) will have
underpinned the agrarian sector as well,” Stanbic economist for East
Africa Jibran Qureishi said in a statement on January 4.
“Moreover,
firms scrambled to clear backlogs of stock in December which
subsequently boosted output, while surprisingly costs remained steady
for firms during the festive season as well.”
Companies
further reported increased export orders, indicating that firms
experienced an influx of both domestic and overseas demand.
Kenya’s
economic activities last year recovered from a five-year low in 2017
spurred by improved weather and a better investment environment
following a March 9 truce between President Uhuru Kenyatta and
Opposition chief Raila Odinga — popularly known as the Hand Shake.
“Growth
momentum will likely be sustained in 2019, as healthy remittance
inflows and a tighter labour market drive solid private consumption,
while upbeat business confidence fuels a strong expansion in fixed
investment,” Researchers at FocusEconomics, a Barcelona-based economic
forecast and analysis firm, said on December 14.
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