A third of State growth projects failed to take off, says House report

A third of the Government’s development projects were not implemented last year, a new report has shown.

The report by the Parliamentary Budget Office (PBO) shows that the Government spent Sh1.79 trillion (26.9 per cent of GDP) against a target of Sh2.04 trillion (31.1 per cent of GDP) last year.

“The lower spending was mainly on development expenditure, which was off target by 30 per cent (Sh204 billion),” the report notes, adding that this indicated that about a third of the country’s development projects for 2015/16 failed to take off.

“This low expenditure was largely driven by low absorption of foreign-financed projects,” the report notes.
The Parliamentary Budget Office is a professional office of Parliament. It provides professional services to committees of Parliament with regard to budget, finance and economic information and data.

In its latest report, Prosperity Amidst Volatility: Budget Watch for 2016/17, PBO accuses Treasury of revenue overestimation that ends up forcing the Government to revise its budgets after it falls below targets.

“This scenario has always ended up exerting pressure on domestic borrowing to bridge the financing gap occasioned by missed targets,” it adds.

Last year, the Government collected Sh1.22 trillion. This was below its target by a hefty Sh80.9 billion. The external grants were also below target by more than 50 per cent. Only Sh29.6 billion was collected against a target of Sh66 billion.

“The out-turn of lower than projected expenditure, lower revenues and lower external financing is an indication that the budget continues to be over-ambitious both on expenditure as well as on the financing side,” the report says.

The report notes that unless the Government adopts radical reforms in revenue administration and ensures a conducive environment for economic growth, it is highly unlikely that the Kenya Revenue Authority (KRA) will be able to raise 2.27 trillion tax revenue.

KRA is expected to collect about Sh1.3 trillion this year, more than Sh280 billion from last year’s level. In addition, given that the country is gearing up for an electioneering period, it is highly unlikely the targeted six per cent growth would be realised since investors normally adopt “a wait and see attitude” during this period.

“Should this trend continue in the current financial year, the projected expenditure performance may miss the target by at least 20 per cent,” the report adds.

The report notes that the national outstanding debt hit Sh3.312 trillion in March. This translates to 51 per cent of the Sh6.44 trillion nominal GDP. Of this, Sh1.67 trillion relate to externally held debt, while 1.65 trillion to domestically held debt.
“Given the pressure of financing ongoing government projects on the primary deficit, this surge in debt portfolio is expected to continue in the medium-term and the long-term,” the report adds.

The Parliament budget team says that even though external debt sustainability remains at sustainable levels and at low exposure risks, it is worth noting that the debt service to export ratio has surpassed 25 per cent threshold and is expected to worsen by 2024.

“The fall in this indicator is as a result of the worsening level of current account deficit in relation to the level of external debt and might affect any plans of the country to address the level of debt in the future,” indicates the report.

If the idea of a second Eurobond materialises, this will increase the stock of public debt as well as external interest payables.

“It is worth noting that even though the National Government indicates that debt movement are in line with the objectives of the national debt policy of shifting borrowing from domestic markets to external markets, public debt is high and rising, and that according to debt ratio, the country’s solvency position requires attention,” it says.