The Treasury has slashed the 2024/25 budget by Sh267.5 billion to reflect the reality of underperforming revenues amid a ballooning public debt.
Total expenditure and net lending for the financial year starting on July 1 is now estimated at Sh3.92 trillion, down from a previous projection of Sh4.188 trillion.
The lower budget estimates mirror expenditure cuts across the board.
Day-to-day spending by the State or recurrent expenditure, including wages and salaries and interest payments and pension, is expected to fall by Sh77.6 billion to Sh2.781 trillion from a Sh2.859 trillion estimate earlier.
Development spending is once again set to take the largest hit in the rationalisation plans, as the expenditures are now estimated at Sh687.9 billion, down from Sh877.8 billion previously.
In its budget summary for the 2024/25 financial year, the Treasury has mainly attributed the spending cuts to the drag created by the underperformance of domestic revenues.
“Following the underperformance of revenues in the financial year 2023/24, the projected revenues in the approved 2024 budget policy statement (BPS) have been revised accordingly to reflect this reality on the baseline. Further, to remain on the fiscal consolidation path, there is a need to contain borrowing and rationalise expenditures to sustainable levels,” the Treasury noted.
At the same time, the exchequer has revised down its revenue estimates to reflect the reality of below par mobilisation efforts in recent fiscal years.
The estimate for total revenues has, for instance, been revised down by Sh81 billion -- from Sh3.435 trillion to Sh3.354 trillion.
Ordinary revenue, which represents tax collections by the Kenya Revenue Authority (KRA), is now projected to fall to Sh2.913 trillion in the financial year to June 2025 from an earlier estimate of Sh2.948 trillion.
Collections from ministerial appropriations in aid have also been set down to Sh441 billion from Sh486.9 billion.
The Treasury expects total revenues in the current financial year to come in lower at Sh2.886 trillion from an earlier target of Sh3.047 trillion, reflecting the general underperformance of taxes in the past 12 months.
It expects the spending cuts to help the government’s fiscal consolidation plan by reducing borrowing as a means of budget support.
“The fiscal policy endeavours to strike an appropriate balance, addressing rising debt and social discontent while recognising the difficult trade-offs exerted by Kenya’s limited fiscal space that has been exacerbated by continued financing constraints,” the Treasury added.
The 2024/25 fiscal deficit is expected to fall by Sh189.2 billion, reducing the government borrowing requirements from both the domestic credit markets and from external sources.
Net foreign financing will, for instance, fall to Sh256.8 billion from Sh326.1 billion while net domestic financing is now projected at Sh257.9 billion from Sh377.3 billion previously. The bulk of external financing is expected to be sourced from the International Monetary Fund (IMF) through the ongoing multi-year programme by the lender, which runs to April 2025, and from the World Bank development policy financing, a rapid disbursement facility that meets countries’ development needs.
By cutting spending in the budget estimates while acknowledging revenue underperformance, the exchequer has seemingly heeded recommendations by Parliament, which had warned of risks from missed targets.
In its consideration of the 2024 Budget Policy Statement, the National Assembly Budget and Appropriations Committee observed that previous tax-raising measures had not had the desired effect of increasing collections by the government.
“The committee noted with concern that the revenue-raising measures contained in the 2023 Budget Policy Statement and the 2023 Finance Act, have not achieved the revenue growth targets,” the committee said in its report.
The committee approved lower ceilings for spending by the Executive, Parliament and the Judiciary to force down the overall spending plans by the exchequer in the new financial year.
