7 March 2018

Kenya: Civil Servants to Bear the Brunt of Sh84 Billion Budget Shortfall

Photo: Jeff Angote/Nation Media Group
National Treasury Cabinet Secretary Henry Rotich, centre, with other cabinet members before presenting the 2016/17 budget (file photo).

Government suppliers and public servants are set to feel the pinch of spending cuts that Treasury Cabinet Secretary Henry Rotich intends to present before Parliament next week in a bid to plug a gaping Sh84 billion budget hole.

President Uhuru Kenyatta's Big Four projects, entertainment and travel for civil servants, and disbursements to counties are among the votes targeted for reduction after Kenya Revenue Authority (KRA) collections fell short of the Sh1.56 trillion projected a year ago by Sh84 billion.

The government intended to spend Sh2.2 trillion this financial year.

Treasury CS Henry Rotich told the Senate committee on Finance and Budget on Wednesday that the drawn-out election last year and persistent drought were to blame for a slow down in businesses that meant less was being generated in the form of tax.


He said the national government will tighten its belt by cutting down on travel, entertainment and other "unproductive" expenditures in the hope of saving Sh60 billion.

"If we have to slow down some development expenditure, so be it," Mr Rotich said. "Something must give, and what is natural here is cutting expenditure."

The far-reaching reviews in budgetary allocations will be contained in the Supplementary Budget II estimates expected in the National Assembly once it resumes its business early next week after a short recess.

The estimates could not be released on Wednesday because they were yet to be discussed by the Cabinet, sources said.

Among the projects likely to suffer are President Kenyatta's legacy initiatives that target to increase the manufacturing sector's share of Gross Domestic Product to 15 per cent by 2022, enhance food security, provide universal healthcare to all Kenyans, and build at least 500,000 affordable and decent housing by 2022.


Under these, extension of the Standard Gauge Railway and construction of mega dams in various parts of the country are likely to be among the casualties.

Should counties adopt similar measures, the government would slash Sh18 billion in disbursement to the devolved units, leaving them with Sh284 billion to run their activities.

That, however, is subject to Parliament approving an amendment to the Division of Revenue Bill of 2017.

"It would force us to borrow to get the Sh302 billion sharable revenue to counties. We can't share what we have not collected," Mr Rotich told the committee chaired by Mandera Senator Mohamed Mohamud.


But Council of Governors chairman Josephat Nanok said the "arbitrary" decision by Mr Rotich will ground services in the counties.

"We are totally surprised by this declaration because the amount to be allocated to counties through the Division of Revenue Act 2017 was ratified by the Intergovernmental Budget and Economic Council (IBEC).

"The council approved this decision after negotiations and changing them arbitrarily is unacceptable," Mr Nanok, the Turkana Governor, said.

Economist Robert Shaw said although devolution is truly transformative, it is also an expensive affair.

The national government, he added, does not have much choice as Mr Rotich's declaration is a ripple effect of what is happening in the national government's expenditure.

DEBTSenators Mutula Kilonzo Jnr (Makueni), Rose Nyamunga and Fahriya Ali opposed reducing allocations to counties.

"Just tell us that the government is broke," Mr Kilonzo told the CS.

The government has not disbursed money to counties for the last four months and owes them about Sh172 billion, three months to the end of the current financial year.

This has led to an accumulation in pending bills owed to suppliers and contractors by the 47 counties to over Sh80 billion.

Companies and small businesses have blamed irregular payments by the government for the rising spate of bad loans, delayed salaries, and retrenchments.


The revenue shortfall has deteriorated from the Sh63 billion projected in March last year during budget discussions and Sh74 billion in January when Treasury made the Budget Policy Statement, to the current Sh84 billion.

The collections however were found to be ambitious during talks with the International Monetary Fund last month, when the gap was revised to the current figures.

The government is negotiating with the IMF for the placement of a Sh150 billion standby facility to cushion the shilling against external shocks.

Last month, the government successfully floated a Sh200 billion Eurobond, a commercial loan whose proceeds will mostly retire existing debts.


Any review to the counties must be done by amending the Division of Revenue Act of 2017, a process that is likely to drag as both the Senate and the National Assembly must agree on the final version of the Bill, just three months to the end of the financial year.

In essence, Mr Rotich just fell short of confirming what critical quarters keep asserting: The government is broke, living beyond its means, and bingeing on debt.

Instead, he maintained that the government is still capable of paying its debts but its collections have been hampered by political and weather-related uncertainties.

That official view however is countered by the Budget Office, which advises Members of Parliament.


It says government expenditure has been growing rapidly, driven by huge infrastructure costs and increased administrative overheads for the many units created by the 2010 Constitution.

With revenue not growing apace, what the Kenya Revenue Authority collects is used to fund recurrent expenditure, salaries and maintenance, with development expenditure being funded by borrowing.

The budget deficit is now at 8.9 per cent of GDP, from 4.1 per cent in 2011, against the six per cent recommended by the Legislature and the three per cent prescribed by the East Africa Community Monetary Union protocol.

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