MPs want Budget cut to Sh2 trillion

A section of MPs from left Charles Nguna(Mwingi West), Mohamed Ali(Nyali), Brighton Yegon(Konoin), Babu Owino(Embakasi East), John Paul(Igembe South) and Samuel Atandi(Alego Usonga) addressing the media on the HELB status in the Country at Parliament on Tuesday 26/02/19. They also want National Budget trimmed to 2 Trillion. [Boniface Okendo,Standard]

Parliament has given Treasury a seemingly impossible target of capping the budget at Sh2 trillion over the next four years.

This comes after the Controller of Budget reported that more than Sh1.4 trillion - half of Kenya’s budget - would be used to service debt.

MPs also want to have a direct say on how much the Government borrows in a bid to tame the country’s appetite for loans.

The legislators are alarmed by Government’s ambitious budget that hit Sh3 trillion in the 2018/19 financial year, having steadily grown from Sh1.2 trillion in 2013.

A large part of the budget is financed through debt.

In a report tabled in Parliament yesterday, the Budget and Appropriations Committee recommended that Treasury pursues a smaller but more realistic budget.

The recommendations are expected to see the country live largely within its means and only borrow minimally.

The latest push is meant to tame the runaway deficit that has been costing the Exchequer dearly and pushed up total debt to Sh5.2 trillion. Efforts to put in place austerity measures have not borne much fruit.

The MPs now want Treasury to trim the budget for the next financial year by 22 per cent to Sh2.06 trillion, from earlier estimates of Sh2.6 trillion.

Treasury should further cap Government’s spending at Sh2 trillion for the next three financial years up to 2022/23, a move likely to result in significant reduction in funding for President Uhuru Kenyatta’s Big Four projects.

“The financing of the 2019/20 budget and the medium term be set at a ceiling of Sh2.062 trillion for 2019/20, 2020/21, 2021/22 and 2022/23,” said the committee chaired by Kikuyu MP Kimani Ichung’wa.

“This will ensure that the deficit/fiscal balance (on commitment basis including grants) is no more than 5.1 per cent, 3.9 per cent, 3.3 per cent and 3.1 per cent for (the respective years).”

“I wish to reiterate that the medium term figures for the deficit should be binding,” said the chairman.

Struggling

At Sh3 trillion, Kenya’s budget for the current financial year is larger than the combined budgets for the other three largest East African Community economies.

Tanzania’s stands at Sh1.45 trillion while Uganda expects to spend Sh860 billion and Rwanda Sh287 billion.

Despite the ambitions, Kenya has been struggling to finance its annual expenditure and has been on a borrowing spree for nearly a decade now, with the result of taking debt to near unsustainable levels.

The country’s debt hit Sh5.27 trillion as of December 2018, which would put it at over 56 per cent of gross domestic product (GDP) having grown from Sh1.7 trillion in 2013.

At the current levels, it would also mean that debt has surpassed the National Treasury’s limit of borrowing less than 50 per cent of GDP in net present value terms.

The MPs are also seeking a say on how much the country can borrow, with the Budget committee proposing a debt ceiling above which Treasury would have to seek Parliamentary approval.

“There is growing concern on debt serviceability versus revenue generation. The national government should borrow wisely for development so as not to burden future generations,” said the committee in its report.

“There is need to strike an optimal balance between external and domestic borrowing to protect the country from external shocks while ensuring credit is still available to the private sector.”

“It is high time that this House considers amending the PFM (Public Finance Management) Act to provide for a numerical debt ceiling as opposed to the current scenario where the debt ceiling is pegged on GDP projects.”

Direct control

It is not the first time Parliament will be seeking to have direct control over Kenya’s level of borrowing. A recent Bill by Emgwen MP Alexander Kosgey also sought to limit State borrowing at Sh6 trillion unless an adjustment is made by Parliament and the Senate.

Mr Kosgey said Treasury has been using a complex formula to defend huge borrowing that is driving the country into a debt trap.

The country used to run such a system, where Parliament had the final say on borrowing limits.

This was supposed to be done annually but legislation made under the Jubilee administration quietly took away Parliament’s direct control over the amount Treasury is allowed to borrow. Instead, the power was given to the Executive.