Excerpt : It was big, bold and ambitious! The 2016/17 budget was the largest ever, with a planned expenditure of shs 2.3 trillion. Budget making by Treasury has evolved to become an art in official deceit.
It was big, bold and ambitious! The 2016/17 budget was the largest ever, with a planned expenditure of shs 2.3 trillion. Budget making by Treasury has evolved to become an art in official deceit. We build an enormous, feel-good plan that glosses our over the near stagnant revenues and ballooning debt drowning the nation. Treasury no longer struggles to plug the financing gap; it merely writes it off to debt.
Each year, we craft a lofty plan without reviewing how we performed in the previous year. In 2015, government operations ground to a halt barely two months after the shs 2.1 trillion budget was approved by the National Assembly. There was a massive cash crunch; salaries could not be paid, exchequer releases to ministries dried up, transfers to county governments delayed; and the Treasury was in the red! Reason given? There were revenue shortfalls, and some large debt redemptions! How did the Treasury miss these projections in the budget?
A budget is about matching projected revenues with your planned expenditures for a specified period. Its implementation will come a cropper if either the revenues were exaggerated, or the expenditures understated, or the debt financing anticipated is delayed or is presumptive. Treasury has placed next year’s revenues at shs 1.5 trillion in the budget, up by some shs 300 billion over the current financial year. This is systematic overestimation by KRA that expects to underperform by nearly shs 100 billion in the current year.
But even assuming the revenue target is met against the planned expenditure of shs 2.3 trillion, there will be a deficit of over shs 700 billion to be financed by debt that may hit shs 4 trillion by end of next year. This excludes a standby loan facility of US$1.5 billion with IMF that will be drawn if the ship starts taking in water. Treasury will tell you that it is sustainable, but is it? In 2016/17, the government will pay nearly shs 500 billion to service debts, which is a third of projected revenue. This amount is about the same as our public wage bill that is often demonized by the State.
Treasury will argue that the loans are necessary because it finances investment in infrastructure and production that will grow the economy. Facts however do not support this argument. In 2015/16, we budgeted over shs 600 billion for development but by December we had spent just over 20% of it . Our absorption rate of development funds averages 45%, meaning we shall have spent only about 300 billion. Without even factoring in our own revenues used for development expenditure, Treasury has already borrowed over shs 460 billion in the 12 months to June 30th this year. We have over 1,000 incomplete projects across the country that require over shs 3 trillion to complete. See the riddle?
In 2016/17, public expenditure will be over 30% of the GDP, up from 28% this year despite repeated pledges to rationalize government operations. The budget lacks austerity the government promised to embrace. Kabisa!
CS Rotich has mastered the art. For the 45% of Kenyans living below the poverty line, he discusses measures to “ease the cost of living”. Kenyans, he says “expose themselves to premature death” by using charcoal, and goes ahead to reduce duties on stoves from 25% to 10% so that they can switch. The more the stoves, the more kerosene used; so he raises tax on kerosene by shs 6 per litre. Bingo! The poor folks should live longer! Similarly, he proposes to remove taxes on “bonuses, overtime and retirement benefits” of workers earning below shs 12,000; which workers in this category have these benefits? Feel good!
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