Budget cuts loom as State spending overtakes revenue

National Treasury CS Henry Rotich at the Treasury building on June 24, 2018. [File]

Government agencies, ministries and county governments should brace up for leaner budgets, as the State grapples with an imminent shortfall in expected revenues against higher spending needs.

National Treasury is expected to bring a mini-budget within the next three months, with Sh235 billion projected to be snuffed from the budgets of ministries or the 47 devolved units by the end of June. 

An analysis of the National Treasury’s Statement of Exchequer showed that by the end of the current financial year, Treasury expects to mobilise Sh909 billion in revenues against a spending needs of Sh929 billion.

Treasury is likely to mobilise less than Sh909 billion with the Kenya Revenue Authority (KRA) expected to collect an average of Sh195 billion monthly between April and June. This is an uphill task for a tax agency that has averaged Sh113 billion in the last nine months.

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Experts forecast KRA to miss its revenue collection target of Sh1.6 trillion for the Financial Year 2018/19, aggravated by the impending drought that is likely to depress harvests.

By the end of last month, the taxman had collected Sh1.02 trillion in taxes, leaving it with an uphill task of collecting Sh585.3 billion in the next three months.

Other revenue streams such as grants from donors are also likely to underperform, with Treasury having mobilised 59 per cent- Sh7.6 billion -  of the total projected funds from foreign governments and organisations by end of March. The Government expects to receive Sh12.9 billion in the form of grants by end of June.

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Analysts reckon that Treasury will have to do a supplementary budget, shifting resources to critical areas even as non-essential spending is reduced.  “In any case, that (supplementary budget) should be the way out,” said Dr Samuel Nyandemo, an Economics lecturer from the University of Nairobi.

Dr Nyandemo said the current dry spell was not well catered for in the Government’s spending plan and it will strain State resources. Nyandemo’s position was supported by the CEO of the Institute of Economic Affairs, a public policy think-tank - Mr Kwame Owino.  Mr Owino said Treasury was in a difficult position. “I just want to see what they will do,” said Owino.

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In August 30, President Kenyatta brought a supplementary budget proposing a reduction in expenditure by at least Sh55 billion after the Value Added Tax (VAT) on petroleum was halved to eight per cent, leaving a hole in the Exchequer.

Development spending was the biggest casualty, losing Sh28.5 billion as the Government moved to balance its finances. Allocations for National Government’s recurrent expenditure and Counties declined by Sh9 billion each.  

Some of the ministries that saw their capital spending allocation significantly slashed include State Department for Public Service and Youth whose budget was reduced ten-fold from the initial Sh13.3 billion to Sh1.3 billion.

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Kenya Revenue AuthorityTreasuryStatement of ExchequerState Department for Public Service and YouthVATValue Added Tax