Report: Reduced allocations at county, central governments could impact private sector

Henry Rotich, Cabinet Secretary National Treasury (PHOTO: FILE)

NAIROBI, KENYA: Already reeling from a drawn out election process and a drought that has put 3.5million Kenyans on the brink of starvation, the country's economic woes have been compounded by steep budget cuts at both the central and county governments.
 
This follows reports from Treasury earlier this month that Kenya's 2017/2018 Budget would overrun earlier estimates by more than Sh50 billion - necessitating austerity measures across government ministries and departments across the board.
 
"Given the likely underperformance of businesses on account of prevailing challenges in the business environment, revenue shortfalls are likely to persist in this financial year," stated Treasury Cabinet Secretary Henry Rotich, earlier this month in a report.
 
Kenya's Supreme Court ruling annulling the August 8th presidential election has heighten political temperatures in the country, dampening business and investor activity.
 
In the past month, street demonstrations by opposition party supporters in several parts of the country have seen business activity slow down. Treasury had earlier expressed fears that the reducedbusiness activity would further lower revenue collection targets. 
 
"Owing to the expected economic downturn and low revenue performance, county governments urgently consider on their own motion to implement appropriate austerity measures with a view of realizing more resources for development," Rotich further stated in his recommendations contained in a supplementary budget report.
 
Rotich had earlier proposed a reduction of 20 per cent on domestic travel and 75 per cent on foreign travel, training expenses, printing and advertising among other expenses for operations and maintenance. Reductions were further proposed in the recurrent budget under both the Parliamentary Service Commission and the National Assembly votes by sh6.8billion.
 

Treasury further recommended suspending spending of some sh43billion in low-priority expenditure. These include several national government projects such as the Digital Learning Programme, DLP and the Lamu Port South Sudan Ethiopia Transport, project LAPSSET.
 
"The proposed changes in the supplementary budget have led to downward revision of targets for key policy interventions such as ongoing public investments in roads, agricultural mechanization, industrial investment including special economic zones and industrial parks, vulnerable persons accessing subsidized health insurance and construction of teacher training colleges," explained Treasury in it's report.

Counties have further been urged to make reductions by fairly equivalent ratios as the national government such as spending on foreign and domestic travel, office supplies, hospitality and purchase of furniture.
 
The spending cuts at the county level are likely to slow down operations and development projects already hampered by delayed disbursement of the sh306billion equitable share from the central government.
 

The Kenya Council of governors last week wrote to Treasury stating that the delayed disbursement of the county monies had stalled development projects in the counties and exposed the devolved units to expensive commercial loans to pay salaries for public workers.
 
Treasury has since explained that the delay experienced despite both houses approving the County Allocation of Revenue Act, 2017 was as a result of a technicality on the part of the Senate. 

 "The County Allocation of Revenue Act (CARA) 2017 was approved by parliament and assented to by the president," stated the treasury in a report last week. "However, the schedule of disbursement approved by the Senate was in variance with the CARA. The National Treasury is awaiting clarification from the Senate on the same."
 
In the meantime, Treasury has released sh20billion to some county governments for the payment of staff costs and key services.    
 

Public spending by the government is sometimes considered necessary to stimulate local economic growth. Economists have argued that spending in key public areas such as eduction and healthcare provides crucial cash injections that boost liquidity.   

 
The government is also often considered the largest procurer of goods and services across several sectors and a slump in demand could have a knock-on effect on sales and bottom-lines for the private sector.
 
The Kenya Association of Manufacturers, KAM last week stated that while optimism had improved among Kenyan industrial manufacturing players, more than half of them were certain of economic prospects in the near future.
 
"Looking ahead, 64 per cent of industrial manufacturers forecast zero or negative revenue growth in the next 6 months while 2 per cent expect positive revenue growth," stated KAM in the third edition of the Menya Manufacturing Barometer.
 
KAM further stated that 56 per cent of manufacturers projected a decline in the number in new orders as well as low demand for manufactured goods.  
 
Figures released by Treasury last week on the country's revenue and expenditure report as at 29th September 2017 however indicate that the country's revenue authority, despite the poll blues, registered an increase in revenue collection.  
 
The Kenya Revenue Authority, KRA has since netted sh317billion since July this year. This is however 21% of the sh1.49 trillion target set in the 2017/2018 financial year and unlikely to lessen the pressure on the taxman to increase the country's revenue basket. This particularly comes after fresh demands for financing contained the supplementary budget with Treasury revealing that total recurrent budget has gone up by sh52.9billion. 

This jump has been attributed to sh23.1billion for the free secondary education programme, sh10billion allocated to the Independent Electoral and Boundaries Commission to carry out a repeat elections and sh6.2b meant older persons' cash transfers.
 
Additional spending approved further include sh6.9b for enhanced security operations including resettlement of internally displaced persons, sh5.2billion meant for the implementation of the Collective bargaining Agreement made by University staff unions, sh3billion for the final tranche of the maize subsidy and sh2.2billion for famine relief.
 

"It is likely therefore, that the financing gap is much higher than envisaged," stated Treasury. "There is no clear strategy on how this will be addressed in light of declining business activity and reducedor postponed private and government consumption."
 
Because of this, the Treasury has recommended the government review cutting government common supplies in order to support local businesses and tax yield. Treasury has also cautioned that reduced spending in development projects will have an impact on the country's growth targets.  

"Revising the development budget downward in the course of the year could lead to lower contribution of the development budget towards sustainable economic development," read a Treasury report in part.
 
"These interventions were meant to boost economic growth and development including creation of jobs and promotion of welfare. Under the current circumstances, this may not be achieved as most of these targets including job creation have been scaled downwards."