A section of the Muthaiga roundabout Junction being tarmacked. This is a project being funded by the African Development Bank and is expected to be complete by end of the year. Photo/Fredrick Onyango
What you need to know:
Information from the EU delegation in Kenya shows that funding dropped by Sh330 million, from Sh7.33 billion in 2010 to Sh7 billion, which was linked to hard times in the eurozone.
France, which is the second largest donor in the continent after Germany, cut its funding for the first time by three per cent even as Britain slightly reduced its spend on international development finance with Spain slashing its budget by 29 per cent.
The World Bank warns that donor flows may be drying up even faster than previously projected given the severity of the financial crisis on sovereign balance sheets in donor countries.
The move will affect Kenya whose tax projections have started showing weaknesses after the annual tax returns for 2011/2012 missed the target by Sh9 billion. Kenya has been heavily relying on donor funding to drive its infrastructure projects geared towards achieving the ambitious Vision 2030.
Kenya expects Sh74 billion in loans and grants from bilateral lenders to finance the 2012/2013 budget and Sh225 billion from multilateral, lenders according to the Treasury’s estimates. Kenya expects Sh12 billion from France, Sh5.3 billion from German, Sh3.1 billion from Denmark, and Sh2.2 billion from Sweden.
China and Japan have in the recent past increased their development finance to Kenya with billions of shilling for roads, and water projects. The coalition government has been courting the East Asia countries to increase their participation in local projects, boosting inflows from Japan, China, and South Korea.
Donor funding from the European Union (EU) to Kenya declined last year, for the first time in several years, on what the EU delegation linked to the economic stress in the eurozone area.
Information from the EU delegation in Kenya shows that funding dropped by Sh330 million, from Sh7.33 billion in 2010 to Sh7 billion, which was linked to hard times in the Eurozone.
Even though only a small fraction of the funding from the EU countries trickles through the EU delegation, available data shows that total flows also dropped last year after a sustained rise for seven years.
“The decline in funding is understandable taking into consideration the financial crisis in some of the EU member states such as Spain and Greece,” said Mr Christophe De Vroey, the Trade and Communication Counsellor for the European Union delegation to Kenya.
The debt crisis in Europe has stunted economic growth in the continent’s main economies as recession bites, weakening the case for donor funding in favour of austerity measures.
France, which is the second largest donor in the continent after Germany, cut its funding for the first time by three per cent even as Britain slightly reduced its spend on international development finance with Spain slashing its budget by 29 per cent.
The move will affect Kenya whose tax projections have started showing weaknesses after the annual tax returns for 2011/2012 missed the target by Sh9 billion.
External funding “With expectations of more than Sh200 billion from external funding, the 2012/2013 budget is significantly exposed to the debt crisis,” said Mr Henry Rotich, the deputy director Economic Affairs, at Treasury.
Kenya expects Sh74 billion in loans and grants from bilateral lenders to finance the 2012/2013 budget and Sh225 billion from multilateral, lenders according to the Treasury’s estimates.
Kenya expects Sh12 billion from France, Sh5.3 billion from German, Sh3.1 billion from Denmark, and Sh2.2 billion from Sweden.
Ministry of Health permanent secretary Mac Bor said in an earlier interview that donor funding for health programmes from a number of European countries was declining.
The most affected countries such as Italy had pledged Sh1.76 billion while Spain had pledged Sh1.2 billion.
The 15 largest economies in Europe, for the first time in seven years, cut their spending on development assistance by one per cent, raising fears that the ongoing crisis could stunt inflows from the world’s biggest donor to Africa, Europe.
Britain, through its external development agency DFiD, moved out of an aid relationship with a number of countries during 2011 and 2012 to increase its impact on the ground.
Those affected are Angola, Bosnia, Burundi, Cambodia, China, Iraq, Kosovo, Lesotho, Moldova, Niger, Russia and Serbia.
The move risks reducing funding to national budgets, reduce funding to NGOs, and scuttle health projects such as HIV and Aids control.
“As the debt crisis spreads across the region, member states will likely continue measures of budget austerity, making it more challenging than ever to protect development assistance funding,” said One, an anti poverty pressure group based in the UK.
The World Bank warns that donor flows may be drying up even faster than previously projected given the severity of the financial crisis on sovereign balance sheets in donor countries.
Such a shift in donor flows can accelerate the need for low-income countries to borrow on commercial terms, which could rapidly increase the exposure of their debt portfolios to financial risk if not managed prudently.
Analysts project that the crisis could continue for a longer duration with tough repercussions for poor countries.
“The recession could prevail at least for the next five years,” said Robert Mudida, the academics director at Strathmore Business School.
Among the country’s that cut development assistance last year are Austria, Denmark, Finland, Greece, Ireland, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom.
Austria and Portugal slashed their international development budgets by six per cent and three per cent respectively as Greece slashed its spend on development assistance by 39 per cent.
Some of the countries in Europe, however, decided to hold or increase aid to Africa while cutting development finance elsewhere.
But the sustained turbulence in the Eurozone area could see them further cut funding to Africa as they seek to trim their budgets amid pressure from their peers.
Data from the economic survey shows that up to last year, Kenya owed France Sh40 billion while Kenya’s debt to Germany was Sh26 billion.
The other leading donor is Britain whose financing is mainly through international donor agencies.
Kenya also owes the International Development Association (IDA) and the International Fund for Agricultural Development (IFAD) a total of Sh319 billion.
“We are likely to see a drop in the international development finance budget by the European countries which will make it hard for Kenya to finance her budget as the economy slows down this year,” said Mr Fred Mueni, the director of Tsavo Securities.
European economies failed to grow in the first quarter of this year at a time when the region is going through a debt crisis that has led to austerity measures which have since hit consumer demand for exports from developing economies.
Kenyan NGO’s saw donor inflows last year grow 10 per cent on what was largely attributed to funding to political parties. Players in the sector, however, said that donor inflows had been plummeting over the years due to bad times in the developed markets.
“Britain has threatened to cut the international development finance budget which will further cut donor funding to NGOs,” said Kenya Red Cross director-general Abbas Gullet.
For years, international donors accounted for more than 95 per cent of NGOs’ annual funds, but this has dropped to about 70 per cent, according to the National Council of NGOs.
Figures from the National Council of NGOs show that donor funding declined from Sh87 billion in 2007 to Sh81 billion in 2008 and Sh73 billion in 2009.
China and Japan have in the recent past increased their development finance to Kenya with billions of shilling for roads, and water projects.
The coalition government has been courting the East Asia countries to increase their participation in local projects, boosting inflows from Japan, China, and South Korea.
Kenya has been heavily relying on donor funding to drive its infrastructure projects geared towards achieving the ambitious Vision 2030.
Unlike her neighbours, Kenya’s budget is largely financed domestically meaning that countries such as Uganda, Tanzania, and Rwanda face higher risks as the crisis deepens.
External grants to Uganda are expected to decline from 2.7 per cent of GDP in 2011/12 to 1.8 per cent of GDP in the 2012/13 financial year.
