Treasury cuts development spending by Sh213.5bn

The Treasury has cut development spending by Sh213.5 billion for the current financial year through a mini-budget in what could dim economic growth and jobs creation.

The mini-budget, which was quietly tabled in Parliament last week, indicates that project spending will drop from the initial budget of Sh820 billion to Sh606.5 billion.

Projects affected by the cuts include the standard gauge railway, roads, water, power plants and electricity transmission.

The cut in spending comes as Kenya races to rein in a ballooning budget deficit and appetite for borrowing amid missed revenue targets.

The draft Budget Policy Statement (BPS) released last week indicated that the Treasury will cut government borrowing by Sh155.4 billion this year.

The government remains the biggest buyer of goods and services and reduced spending has an effect on economic growth which is projected at six per cent this year.

The budget for rail transport has been cut by Sh43.4 billion to Sh112 billion, roads spending down by Sh27.7 billion, power transmission spend lowered by nearly half from Sh93.4 billion to Sh46.9 billion and water projects Sh18 billion.

Tourism promotion cash has been cut by Sh1.5 billion, power generation by Sh11.3 billion and marine transport by Sh8 billion. The scandal-hit National Youth Service has been added Sh1.7 billion, taking it projects budget to Sh20.3 billion.

Recurrent expenditure — spending on items like salaries, travel and entertainment — will increase by Sh32.4 billion in the current year to Sh889.9 billion.

Kenya’s economy is likely to expand by just over six per cent next year, down from an initial forecast of 6.5 per cent, mainly because of slowing private-sector credit growth.

Most of the growth momentum has been driven by public sector investment, said a Treasury official.

READ: Only 10pc of development budget spent with a quarter of year gone

Kenya is building a new multi-billion- dollar railway line from Mombasa to Nairobi and ultimately to Malaba via Naivasha, expanding its road network and constructing new power plants and dams.

This is putting money in private hands through demand for raw materials, which ultimately creates new jobs.

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

Last year, the Treasury cut development spending by Sh49.1 billion. Official data shows a total of Sh41.8 billion was spent on development in the three months to September, which is about five per cent of the original projects budget of Sh820 billion.

The Treasury earlier noted that the execution of development projects by ministries had been slow.

Low absorption has been a concern for the government with an estimated 20 per cent of the development budget returned to the exchequer at the end of each financial year unspent.

The trimming of foreign borrowing to bridge the budget deficit comes on the back of criticism for Treasury’s debt appetite with economists warning that Kenya should slow down the uptake of loans.

Citi and Renaissance Capital last month warned that Kenya’s large budget deficit could hurt the shilling and urged the Treasury to cut down on borrowing to finance the gap.

“The larger deficit means higher debt for Kenya which already has a debt ­to­ GDP rate of around 55 per cent,” Renaissance Capital sub-­Saharan Africa economist Yvonne Mhango said.