State spends 10pc of projects allocation as cash crunch bites

Only 10 per cent of Kenya’s development budget has been spent with a third of the year gone as the State cash crunch takes a toll on projects expected to spur job creation.

A Treasury statement released Friday shows that Sh39 billion had been spent on projects in four months to October against an annual budget of Sh389 billion.

The government has experienced a cash crunch this financial year due to high debt payments, reluctance to borrow due to high interest rates, and below target revenue collection.

The Kenya Revenue Authority was below target by Sh28 billion in the first quarter to September and has collected 28 per cent of its annual target of Sh1.2 trillion in four months to October.

Project spending is critical to building infrastructure and putting money in private hands through demand for raw materials that ultimately create new jobs.

Cement makers, steel manufacturers, contractors and the thousands of workers who are employed in infrastructure projects all benefit from public spending and are likely to feel the pinch of the slowdown.

READ: Treasury struggles to meet loan obligations

The government remains the biggest buyer of goods and services and reduced spending has an effect on economic growth which has already been downgraded to 5.8 per cent in the current financial year.

Five independent commissions, including the Parliamentary Service Commission, Teachers Service Commission and Ethics and Anti-Corruption Commission — which had planned to acquire a new office block — have not received a cent of the project funding.

The Interior Ministry is also yet to receive any development cash, putting on ice projects like construction of new police stations.

Other agencies yet to receive funding are the Office of the Director of Public Prosecutions, and state departments for Science and Technology, East African Affairs and Mining.

A spike in interest rates on government paper in quarter one made it difficult for the state to borrow from the domestic market to ease the cash crunch, prompting Treasury to seek a Sh60 billion syndicated loan from commercial banks.

The syndicated loan has reduced government’s appetite for borrowing, cutting rates on short term government paper like Treasury Bills from above 20 per cent in October to below 10 per cent.

Debt repayments stood at Sh145.5 billion in the four months to October, more than three-fold what Kenya spend on projects.

In the year ending June, development expenditures by ministries, departments and agencies (MDAs) were below target by Sh175.8 billion which Treasury attributed to delays in procurement and failure by donors to disburse budgeted funds.

Recurrent expenditure, including salaries, travel and car expenses, stood at Sh198 billion or 27.6 per cent of the Sh717 billion annual budget.