Think tank warns of gaps in Sh4.1tr budget

Kenya risks missing its 2024 growth targets due to gaps in the Sh4.1 trillion budget for the coming financial year, which begins in July.

The Institute of Public Finance (IPF), a finance think tank, has warned that the absence of allocation for pending bills, low development budget, mismatches in priorities and overlaps in government functions could deny the economy the much-needed recovery push, with billions of shillings going into waste due to leakages.

James Muraguri, CEO of the think tank said the national government should prioritise four key sectors, including education, law, health and agriculture if it is to achieve its 5.5 per cent economic growth target for the financial year 2024/2025.

He made the remarks while releasing this year’s National Shadow Budget themed; “Budgeting in an Era of Fiscal Consolidation: Protecting Key Priorities,” yesterday.

Absorption rates

 “The current discrepancies on budget allocations, low budget absorption rates, pending bills headache and duplication of functions are impacting efforts by the government to achieve its fiscal consolidation strategies,” he added.

The national government’s forecast of a Sh300 billion increase in ordinary revenue for the fiscal year 2023/24 is uncertain given the uncertainty regarding the rising cost of borrowing and the accumulation of debt which continues to shrink the borrowing space.

“The current discrepancies on budget allocations, low budget absorption rates, pending bills headache and duplication of functions are impacting efforts by the government to achieve its fiscal consolidation strategies. This is further compounded by external risks as well as high unemployment concerns across the country,” he added.

Despite the government’s commitment to supporting small and medium enterprises (SMEs), transforming the agriculture sector, and resolving the funding crisis in education, the changes in resource allocation suggest otherwise.

Limited borrowing space to finance the budget and the drawing of huge resources by a high debt servicing burden has forced the government to resort to budget cuts for the General Economic Commercial Affairs (GECA) sector by 22 per cent, the Agriculture, Rural, and Urban Development (ARUD) sector by 10 per cent, and the education sector by 3 per cent.

Muraguri said there is a pressing need to prioritise the clearance of nearly Sh570 billion nationally and Sh165 billion in county pending bills.

Clearing these bills may alleviate liquidity constraints for the private sector, but it could strain government finances, especially amid the necessity for fiscal consolidation.

The Institute of Public Finance proposes the establishment of a central sinking fund that will provide a structured approach to gradually pay off the pending bills over the next five years.

Alternatively, Ministries, Departments and Agencies (MDAs) could be tasked with making targeted budget cuts to address their outstanding liabilities.