Development projects face budget cuts in new austerity measures

The government has sacrificed allocations to development projects in the face of counter productive growth in recurrent expenditure and disappointing revenues.

Data from the National Treasury places the allocation on capital projects at Ksh.250 billion against a target of Ksh.348.2 billion in the first six months of the 2019/20 fiscal year to December 31, 2019.

Compared year-on-year, the trim to development expenditure represents a 19.8 percent dip from the Ksh.311.9 billion appropriation to projects in the first half of the 2018/19 financial year.

On the contrary, recurrent expenditure has increased, growing by 20 percent in the review period to Ksh.772.5 billion from Ksh.643.9 billion in spite of the insistent on cuts to the routine spend by the Treasury.

Operations and maintenance bills have carried the weight of responsibility having grown by 34.2 percent to Ksh.249.8 billion ahead of debt refinancing costs and beyond the guidance of Ksh.223.4 billion.

Dire consequences

ICEA Lion Head of Research Judd Murigi reckons development expenditure makes for a soft target in the government’s containment of overzealous spending.

“The government has taken some initiative to cut recurrent expenditures. The key concern however is, as fiscal pressure mounts, the low hanging fruits tend to be development expenditure which may have to be sacrificed to an extent,” he said.

The World Bank has previously raised concerns on routine cuts to the funding of projects, warning of dire consequences including the expansion of economic inequalities among Kenyan social classes.

“There remains a huge need for investments in addition to the better targeting of the same towards the poor. Even with a case for fiscal consolidation, cuts to development expenditure would be detrimental to economic growth,” said senior World Bank economist Utz Pape in a December plenary.

Allocations to projects remain below the halfway mark to the projected disbursement of Ksh.730.8 billion to the capital expenditures by the end of June this year.

Greater debt shackles

Cuts to development expenditure have however failed to yield dividends as the fruits of pre-advertised fiscal consolidation remain sour.

While the absolute fiscal deficit slimmed to Ksh.214 billion or an equivalent 2.1 percent of Gross Domestic Product (GDP) in December 2019 from Ksh.272 billion in 2018, the stock of public debt has taken negative stride.

Public debt at the close of the year came in at a greater Ksh.6.5 trillion from Ksh.5.89 trillion in June to mirror higher levels of debt accumulation against net domestic and foreign interest payments rounding off to Ksh.441.4 billion.

The higher debt stock is partly attributed to the filling of the fiscal deficit through net domestic and foreign financing to the tune of Ksh.106.2 billion and Ksh.37.3 billion respectively.

Debt accumulation is expected to stay on the uphill drive as the exchequer runs up to dismal revenue mobilization as net collections to December culminate in a Ksh.138.7 billion shortfall from largely, the slack in ministerial appropriations in aid (A-i-A) which fell cumulatively over an year on year comparison.