Nairobi Star (Nairobi)
18 December 2008
Nairobi — GOVERNMENT ministries have been ordered to slash their spending as the state cannot meet its Budget commitments, the Nairobi Star has established.
Ministries have been asked to shelve all non-priority projects because Treasury cannot provide the funds that it had initially allocated them.
The government Budget for the 2008/2009 financial year now appears to be unravelling as its fund raising plans collapse.
Recurrent expenditure that is likely to be on the chopping block includes travel, purchase of new motor vehicles, training and hiring for replacement staff.
Development expenditure is also at risk and Treasury source say urban road projects whose designs have already been finalized will definitely be affected. So traffic jams are unlikely to be alleviated by new roads in the foreseeable future..
The Economic Secretary at the Treasury, Dr Geoffrey Mwau, declined to say which specific programs will be cut but indicated it will become clear in February when the government prepares its supplementary budget.
"It is unfortunate because what we ask them to submit (when making the
budget) were already priorities," Mwau noted.
"On the development side those discussions will be held at the time of the supplementary budget," he said. "But it is going to be tight. If the bond (the Sh33bn Eurobond) is not coming, there is a big hole."
Except for programs or projects to which funding had been secured prior to the 2008 budget reading, every other major development project will have to be shelved even as Treasury is reduced to borrowing to meet wages and salary requirements.
According to Dr. Mwau, the government is now in a Catch-22 position because it cannot afford to borrow much more locally without destabilizing the economy.
The situation is so grim that at a function to mark the European Development Day in November, Joseph Kinyua, the Permanent Secretary at the Finance ministry, practically pleaded with European governments to double the money it was giving to Kenya for roads and water projects.
"I would ask that you even consider doubling or tripling it (EU grant)," Kinyua told Eric Van der Linden, the European Commission representative.
The government's cash crunch has been worsened by unplanned for food subsidies and cuts in taxes on electricity even as the tax revenues are declining in the face of slowed production.
The planned referendum costing Sh4billion and a national census will keep up financial pressure deep into 2009.
In the recurrent estimates, the Ministry of Education tops the budgetary allocation with Sh106 billion; Defence was second with Sh42 billion while Provincial Administration took third place with Sh38 billion.
Roads leads development expenditure.
Other programmes that might be put on the back burner include the government plan to hire more teachers. The Kenya National Union of Teachers has already said it opposes the recent statement by government that it will use interns instead of taking on more teachers.
Other likely casualties are the disbursement of Sh1 million to 210 constituencies for the youth soccer tournament; increased salaries for civil servants and teachers who want a 67 per cent pay hike; an increase in youths recruited into the uniformed services; the plan for all Form Four school leavers to join the National Youth Service for a year before joining universities; and President Kibaki's directive that education at the vocational college level be subsidised.
Fear of precipitating a housing crisis as well as making private sector lending unaffordable have forced the government to rethink its borrowing programs which originally targeted to raise more than Sh65 billion locally to help bridge the Sh127 billion budget deficit.
External sources of funding are looking bleak as traditional donor countries, the Paris Club, slide into recession.
Although it raised Sh51 billion from the Safaricom IPO, the other fund raising measures spelt out in the Budget look impossible to fulfil.
The Sh33 billion sovereign bond has had to be put on hold as Western credit markets remain stubbornly frozen.
Similarly, government cannot yet raise the Sh18.5 billion in infrastructure bonds for public works given the dearth of cash in the economy.
A plan to raise another Sh10 billion through privatization of key state corporations looks unlikely due to the general risk aversion from investors still smarting from the Safaricom IPO.
The Cooperative Bank IPO offer fell short of its target figure of Sh 6.7 billion by 20 per cent and the government has recently had under-subscriptions for its regular Treasury bills and bonds.
Be the first to Write a Comment!
Copyright © 2008 Nairobi Star. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
