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How Ruto's budget cut will affect you

Business
 National Treasury CS Njuguna Ndungu addressing the media at his Treasury office in Nairobi on November 10, 2022. [Boniface Okendo, Standard]

Hoteliers, traders in goods like stationery, consultants and civil servants will be among the hardest hit as the National Treasury moves to execute austerity cuts in search of Sh300 billion in cost savings, a State internal plan shows.

President William Ruto recently tasked the National Treasury to begin planning spending cuts on non-priority items to try to tame the country’s big public deficit.

“I have instructed Treasury to work with ministries to find savings of Sh300 billion in this year’s budget,” said Dr Ruto in his maiden speech as president to the National Assembly.

Now, new National Treasury guidelines issued recently on how the budget cuts will be conducted give a fresh window into who will be the hardest hit.

According to the guidelines contained in a circular to all Cabinet Secretaries and accounting officers dated November 7, the first of the biggest casualties of the cuts are civil servants whose hefty emoluments will have to go.

The Treasury has asked State departments to do away with emoluments often accrued by State workers in their line of duty.

The move is likely to test the tolerance of workers' unions at a time the clamour for better pay has been mounting.

Yesterday, unions warned that the noble pursuit of austerity should not put workers at strain at a time runaway inflation is squeezing consumers hard.

Union of Kenya Civil Servants (UKCS) Deputy National Organising Secretary Wilson Asingo said the austerity measures being undertaken should not affect facilities or allowances for workers, which are key enablers to public service delivery.

"As civil servants, we are expecting review on remuneration, with commuter allowance and harmonisation of house allowance topping the list of immediate priority," he told The Standard.

"The last time the commuter allowance was reviewed the cost of fuel was less than half the current," he said.

Mr Asingo said austerity measures that hurt workers fly in the face of existing largesse in government.

"It is ironical that the meeting to discuss reduction in things like office tea are attended in fuel guzzlers," he said.

"When Public Service Cabinet Secretary Aisha Jumwa talked of a demoralised civil service unable to cope with the high cost of living, promising to revamp morale by increasing salaries, it sounded encouraging that someone acknowledged the plight and suffering of the civil servants and that's the discussion we are focusing on," he added.

The Treasury has also proposed a 75 per cent budget cut in communication services and supplies, printing, advertising and information supply services, hospitality services and supplies. 

The government is the largest purchaser of consumer goods and services, offering livelihoods to millions of suppliers and small businesses across the country, according to official data.

Every year, the State procures billions of shi

llings worth of products, equipment and services offered to various State departments by suppliers.

"Further to the discussions held between the National Treasury and MDAs (Ministries, Departments, and Agencies), the Government will control expenditures by initiating austerity measures on the provisions for the operations and maintenance. These measures will be undertaken in all MDAs, including Semi-Autonomous Government Agencies," says the National Treasury CS Njuguna Ndung'u in a memorandum to all heads of departments dated November 7.

The ban on State advertising, including tenders and job applications, in commercial media will help the public save money, argues the Treasury.

But this is likely to hit hard businesses in the communication services, including newspapers, television companies, events organisers and equipment providers.

The restriction on hospitality services will hit hoteliers who supply food and products like flower bouquets and garlands to State functions.

The State is categorical that all meetings must be held in government boardrooms and not hotels.

Hoteliers yesterday warned that they might resort to job cuts if the directive is not rescinded.

According to Naivasha Tourism Association Treasurer and Panorama Hotel General Manager Sammy Mugo, hoteliers will have to restructure the labour force to fit within the limited businesses available in the market, thus layoffs will take effect immediately.

The government will also lose taxes and levies from businesses should they collapse under the weight of the new directive.

"With the prevailing tough times and the high cost of living, businesses will struggle to remain afloat, especially those who are highly dependent on conferences. Some might be forced to shut down as there will be minimum or no business," he told The Standard.

Hotels in the resort zones of Mombasa and Naivasha have been enjoying brisk business from government departments, thanks to the growing conference tourism, billed as the fastest-growing segment of the sector.

"The government should be able to support the industry by partnering with hotels as a recovery model for post Covid-19. By cancelling meetings it will mean a lot of business will struggle to remain afloat," said Mr Mugo. 

"This will also affect directly the suppliers and farmers as they won't have a ready market for their produce."

The early casualties for the ban on hospitality was in full show at a recent National Treasury's no frills event at the KICC presided over by Prof Ndung'u. Breakfast was not served despite visible elaborate plans for the usual treat to guests by a hotelier who was left in limbo.

Under the planned rationalisation budgets for contracted professional and technical services, routine maintenance of vehicles and other equipment, purchase of office furniture and new motor vehicles and refurbishment of builders will also be scrapped.

This is expected to hit suppliers of equipment, including furniture and auto dealers.

Dozens of firms have signed lucrative leasing contract with the State in the last decade, signalling the government’s shift from direct purchase of vehicles. This has raised the stakes for firms that rely heavily on State orders.

The budget for research and new feasibility studies will also take a hit, according to the Treasury. 

The budget realignments come at a time small businesses and suppliers are still battling the lingering economic effects of the Covid-19 pandemic and the slowing economy based on the Russia-Ukraine war and tightening economic conditions globally.

This has been having a negative effect on individuals and companies.

Yesterday, manufacturers asked the State to enhance procurement efficiencies to protect local jobs and businesses amid the budget cuts.

"We really need to live within our means...there is a lot of wastage and the cuts announced by the president is a welcome move," said Kenya Association of Manufacturers (KAM) Chairman Rajan Shah.

He, however, said cutting down expenditure does not necessarily mean all procurement will be stopped.

"We should enhance procurement efficiency and give the first chance to locally manufactured goods," said Shah.

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