It will cost up to Sh2.7 trillion for President William Ruto’s administration to implement its rosy promises over the next five years, a new report shows.
The Sh2.67 trillion is the total war chest required over a five-year period by the new administration with the first year requiring Sh473 billion, about a fifth of the total amount.
The monumental cost of funding Ruto’s Bottom-up Plan comes at a time when the new administration faces a narrowing fiscal space to roll out its policies, amid high debt repayment obligations.
This is according to a new report by Budget experts in Parliament. It gives insights into the financial headache faced by the Ruto administration which is under pressure to bring down the cost of living and create jobs for the low-income segments of the society against a backdrop of a slowing economy and fewer finances.
Ruto faces the uphill task of stabilising government finances and bringing living costs under control and the Parliamentary Budget Office (PBO) warns he will have an uphill task in implementing the colourful promises.
“It is estimated that Sh2.67 trillion is required to fully implement the manifesto within five years and approximately Sh473 billion is required in the first year. The costing of the Plan has been undertaken from two perspectives,” says the PBO report published over the weekend.
PBO which advises lawmakers on the economy and Budget says the cost of various interventions as outlined in the Plan was based on underlying assumptions and alternative macroeconomic and fiscal framework scenarios were evaluated.
“The cost estimates have been spread out for the five years that the Plan is expected to be implemented,” says the PBO report.
The programmes outlined are exclusive of the recurrent expenditure meaning the new administration could force taxpayers to dig deeper in to their pockets, according to the report.
But any fresh tax hikes are expected to compound the consumer squeeze.
New tax policies
Already the government has announced plans for an aggressive domestic revenue mobilisation drive to fund the next Budget and its ambitious programmes.
The National Treasury said last week it will introduce several tax policies over the next year in what will be Kenya Kwanza’s first Budget.
This is aimed at raising the needed resources to offset the Budget deficit created by the huge public debt.
“The Bottom-Up Plan has been conceptualised at a time when the economy is facing major headwinds from domestic and global fronts which have resulted in a cost of living crisis. The Plan is cognizant of the prevailing domestic challenges including constrained fiscal space and structural imbalances which have weakened the economy,” said the PBO.
“The situation is further aggravated by external factors such as rising global inflation and interest rates, long term impact of the Covid-19 pandemic and the Russia–Ukraine conflict among other geopolitical dynamics.”
The bottom-up plan is anchored on five key pillars. They include Agriculture, Micro and Small and Medium Enterprises Economy, Housing and Settlement, Healthcare, as well as Digital and Creative Economy.
The study says it will cost Sh250 billion to implement interventions to grow the agricultural sector over the next five years. It will cost Sh397 billion to support the MSMEs sector and Sh62 billion to support the affordable housing programme.
The cost of interventions under Healthcare run up to Sh258.9 billion while it will cost Sh823.3 billion inclusive of existing pending bills estimated at Sh140 billion, to boost the road network.
At the same time, it will cost the Ruto government Sh635 billion to implement promises in the education sector including the hiring of new teachers and building more classrooms and better facilities.
Other big-ticket capital extensive projects including social protection programmes are at Sh116 billion and implementing the women's agenda will cost Sh12.4 billion.
The priority interventions proposed in the Plan are expected to contribute toward six broad objectives including lowering the cost of living, eradicating hunger, managing unemployment, improving fiscal performance, stabilising foreign exchange and ensuring inclusive economic growth.
“These cost estimates have been based on very conservative assumptions including the assumption that various interventions will be undertaken through the Public Private Partnership framework,” says PBO. “This is the case for most projects under the energy and water sectors whose investments are capital intensive.”
To stabilise public finances, it has kick-started a process to cut non-priority expenditures and will consider borrowing from global lenders instead of expensive commercial loans like the Eurobond. But this will be a delicate balancing act, says the budget experts from Parliament.
“The proposed fiscal consolidation plan is laudable, however, cutting expenditure in the existing fiscal framework while accommodating the cost of implementing the manifesto proposals may prove an arduous task,” says the PBO.
“The financing plan proposes to halt commercial borrowing, reduce domestic borrowing and capitalise on concessional financing. Given the cost implication for the agenda in the aforementioned costing scenarios, overreliance on concessional financing may not be achievable in the short-run due to the volatility of concessional financing and the time required to negotiate for the same.”