Kenyans brace for hard times ahead as budget is tabled
By - | June 14th 2012
By James Anyanzwa
Minister of Finance Robinson Njeru Githae will on Thursday announce various measures to raise revenue and fund the State’s mind-boggling record Budget of Sh1.45 trillion.
The Government always spends more than it brings in through taxes, but new demands created by the Constitution have exposed weaknesses in its borrowing strategy.
Consider this: The entire public spending on Parliament, the Judiciary, and independent offices from the Consolidated Fund in the new Budget, starting July 1, will be Sh300 billion more than the current Budget that ends on June 30.
Also facing scrutiny is the priority of Government spending. In the current Sh1.2 trillion Budget (2011-2012), the Ministry of Agriculture’s share was just 1.7 per cent compared to the Teachers Service Commission’s nine per cent.
“We are net importers of food, so why are we not paying necessary attention to agriculture? When it comes to improving agricultural production we have actually not moved an inch,” said Sammy Onyango, chief executive officer of Deloitte East Africa.
According to the Maputo Declaration of 2003, African governments are expected to allocate at least 10 per cent of their national budgets to agriculture.
Threats to the economy include escalating oil prices, weakening value of the shilling, high inflation (general rise in the value of goods and services), and uncertainty in the global economic environment due to the crisis in the European Union.
Except for the ministries of Defence, Internal Security, and Education, the others should expect their allocations to be severely slashed as the war in Somalia, financing free primary education, hiring more teachers, and paying for the General Election take centre-stage.
The Kenya Defence Force is preparing to launch a final offensive on Kismayu in Somalia to dislodge the Al Qaeda-linked Al Shabaab militia from their main supply route by sea. But that will not mean the end of their Somalia engagement as they are now serving under the Africa Mission.
Spending on the military accounts for the largest increase in the 2012/2013 budget at Sh70 billion.
This will be the second increase in the budget of the Ministry of State for Defence that runs the war in Somalia, after its allocation was raised by Sh7 billion for financial year 2011/2012, which ends on June 30.
The Government hinted that the war would strain the current Sh1.2 trillion 2011/2012 Budget, which already has Sh236 billion deficit.
Tax revenue has been below target and the gaping hole in the Budget will have to be filled through other means.
The shilling has been facing renewed pressure and Central Bank of Kenya last month needed donor support to keep the local currency from dropping into red zone territory.
The high cost of borrowing has also slowed down growth of small and medium enterprises that are regarded as key to creating new jobs under the Vision 2030 economic and social development blueprint.
Today’s Budget is the last one under the Grand Coalition Government and the Tenth Parliament. It comes on the back of towering unemployment, rising fuel prices, food insecurity, and overall economic contraction.
The Nairobi Stock Exchange, regarded as a barometer of investors’ confidence, is undergoing a rough time with firms opting for private listings rather than public offering.
The situation is further complicated by uncertainties in the global economic environment that are likely to hurt the country’s earnings from key exports, including cut flowers, coffee, and tea.
Economic growth, measured, as the gross domestic product –the total market value of all services and finished goods produced annually – will contract to 3.5 per cent in 2012 from 4.4 per cent last year.
The setting up of the county governments next year, the war against Al Shabaab in Somalia, the General Election, and the numerous offices set up under the new Constitution have pushed spending through the roof.
The recent salary awards to teachers and doctors increased the recurrent expenditure.
According to the estimates, the bulk of the cash (Sh1 trillion) will be recurrent spending on salaries and allowances for civil servants and teachers. Only Sh451.68 billion will be set aside for development.
According to the 2012/2013 Budget estimates, the Ministry of Provincial Administration and Internal Security has been allocated (Sh60.5 billion). The ministry of Education, and specifically the Teachers Service Commission, will get a recurrent budget of Sh119 billion for teachers’ salaries.
Energy is among the sectors that have been allocated huge amounts, receiving Sh77.2 billion of which Sh2.6 billion will be spent on petroleum exploration and distribution. Geothermal and coal resource exploration and development will take Sh163 million, while Sh180 million will be spent on development of solar energy.
Ministry of Higher Education, Science and Technology will receive Sh45.5 billion, while Ministry of Education (Sh41.4 billion).
The lion’s share of development spending will go to the roads sector, which takes Sh95.6 billion for road maintenance and development.
The current Budget was Sh1.2 trillion, an increase of 15.6 per cent from the previous financial year, translating to about Sh28, 873 per person.
This huge amount raises questions on how the Government will finance this budget without worsening the overall debt position and destabilising the economy.
“We are already spending beyond our means. Borrowing is not a solution and donors are fatigued,” said Martin Kisuu, a regional tax partner at PKF group of accountants and business advisors. He adds that, that the Government’s traditional sources of revenue – income tax and consumption tax – are not enough to finance the new Budget.
Kisuu says the Government should consider introducing capital gains tax to augment shrinking sources of State revenues, and impose heavy and punitive taxation on idle land.
At Sh1.45 trillion, the Budget will have more than quadrupled in the 10 years of the Kibaki’s Administration.
Joe Gichuki, the regional audit partner at PKF, says the economy is threatened by political instability due to the impending elections, inadequate investment in agriculture, and infrastructure weakness.
Others are international shocks in the price of oil, which comprises 25 per cent of the country’s import bill, speculation on the shilling, the property bubble, overheating money markets, and corruption that leads to misdirected Government spending.
“Food self-sufficiency is key to political stability in the medium term. If need be, provide more subsidies for fertiliser, irrigation projects, and other smallholder units,” said Gichuki.
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