Treasury kicks off belt-tightening plan in race to control debt
The National Treasury has started the process of identifying areas where to cut spending.
The scrimping is part of a fiscal consolidation policy aimed at helping the government to manage its debt as it aims to live within its means.
Treasury Cabinet Secretary Njuguna Ndung’u is targeting a 22 per cent cut in the national Budget in addition to a six per cent growth in the economy during his term. This will see the government slash the current Budget by about Sh300 billion.
Kenya’s current fiscal deficit stands at Sh865 billion — which represents 6.2 per cent of GDP. However, it could be reduced to 5.8 per cent if the belt-tightening measures are enforced (see story Page 4).
The slashing of expenditure follows austerity measures directed by President William Ruto. It is expected the fiscal consolidation will be captured in the upcoming supplementary budget and the subsequent budgetary cycles that will form the fourth Medium Term Plan (MTP).
“The government will pursue fiscal consolidation policy in pursuit of attaining debt sustainability. The policy’s main objective is to free resources to growth-enhancing programmes by gradually reducing the overall fiscal deficit and the pace of debt accumulation,” Ndung’u said during the launch of the Budget preparation process for the 2023/24 financial year.
The CS said he will endeavour to keep inflation within the range of 2.5 and 7.5 per cent as opposed to the current 9.6 per cent.
He pledged to promote a competitive business environment to boost exchange rate stability by attracting investments. One of his other targets is to increase revenue collections from the current 13 per cent of GDP to over 18 per cent.
“Our focus will be aggressive revenue mobilisation so as to bring onboard additional revenues,” he said.
As part of new measures to cut expenses, ministries and government departments have been instructed to avoid holding meetings in hotels and instead use office buildings.
“In addition, we intend to contain growth (of expenditure) in non-priority areas,” Ndung’u said.
Parliament is expected to approve the Budget cuts, but should MPs shoot down the proposal, the Treasury could find itself in a tight corner in its quest to implement the bottom-up economic plan.
Treasury has recommended a gradual reduction in expenditure to about 22.7 per cent of GDP over the medium term in line with the government’s belt-tightening policy.
In the current Budget, Kenya had proposed to borrow Sh865 billion to fund development and recurrent expenditure, with about Sh580 billion to be sourced domestically.
However, Treasury Principal Secretary Julius Muia, in a memo this month, directed all government ministries and agencies to cut their budgets. The directive targeted hospitality supplies and services, local and foreign training, travel, office and general supplies and the purchase of office furniture and equipment.
The spending cuts will be supported by an aggressive hunt for more tax revenue, signaling more pain for ordinary citizens, more of who will be included in the tax bracket for the first time. Cuts will also affect civil servants who will get less perks for travel and other per diems.
“As we prepare for the FY 2023/24 and the Medium Term Budget, our focus will be on aggressive revenue mobilisation so as to bring on board additional revenues,” Ndung’u said.
Commodity prices
All the tough measures appear to suggest that the new administration is gradually bowing to pressure from the International Monetary Fund (IMF), which has a big say on Kenya’s policies and the direction the country takes on reducing debt vulnerability and improving financial stability.
The CS, together with the President, met the IMF country officials to discuss the preconditions for additional funding.
If the government keeps its part of the bargain, the IMF will release $433 million to boost the country’s foreign exchange reserves. This was part of the agreement between Ruto and the lender’s staff, who met him at State House last week.
The funds will be released after an approval by the IMF executive board in New York but the staff level report is full of praise for the new administration for slashing consumption subsidies.
The New York based bank said it had reached staff-level agreement with Kenyan authorities on economic policies to conclude the fourth review of the 38-month funding arrangements.
“Kenya would have access to about $433 million in financing once the review is formally completed by the IMF Executive Board,” said the IMF in a statement published on its website. “The new government has expressed strong commitment to the IMF-supported programme.”
Kenya faces strong headwinds due to volatile international commodity prices, tighter external financing conditions, rising inflation and a global slowdown in economic growth. These, alongside continued drought, have created a challenging backdrop for economic policymaking.
