Road, rail projects push Treasury’s budget to Sh1.9trn

Road, railway, energy and airport projects are set to be the biggest winners in Kenya’s Sh1.9 trillion budget for this year, a preview document prepared by the Treasury shows.

Treasury secretary Henry Rotich has proposed an increase in cash allocated to development expenditure by a fifth for the 2015/16 financial year, but he could meet resistance from county governments whose allocation falls short of the amount recommended by the Commission on Revenue Allocation (CRA).

“Overall expenditure and net lending are projected at Sh1.875 trillion or 28.8 per cent of GDP from the estimated Sh1.717 trillion in the 2014/15 budget,” reads the Budget Policy Statement released Wednesday by the Treasury.

Recurrent expenditures will still take the lion’s share of the national cake, gobbling up more than half of the budget at Sh939 billion, up from Sh904 billion.

Development projects will take up Sh675 billion, up from Sh560 billion as per Mr Rotich’s estimates.

Counties will share out Sh274 billion up from Sh253 billion allocated during the current financial year.

The allocation is inclusive of a conditional grant of Sh21 billion being Sh3 billion for the free maternal care, Sh2 billion for leasing of medical equipment, Sh3.3 billion for road levy and Sh8.8 billion for loans and grants.

The revenue allocation to the 47 counties is Sh26 billion lower than the Sh279 billion recommended by the CRA.

“This allocation is above the constitutional minimum of 15 per cent of the latest audited revenues of Sh776.9 billion for 2012/13,” says Mr Rotich in the statement.

Allocations to devolved units have become a major battlefront between the Treasury and governors who complain that the counties are being starved of cash relative to the obligations passed on to them.

The governors have also accused the Treasury of using a constitutional loophole pegging the county allocation on last audited revenues to rely on old data to justify the allocations.

The budget will be funded by tax collections of Sh1.2 trillion supported by appropriations in aid (such as court fines and fees paid to government departments) of Sh100 billion, with the deficit being covered by debt.

The Treasury plans to borrow Sh187 billion from the domestic market and an additional Sh287 billion from international investors.

READ: Missed tax targets push Rotich to local borrowing

The government has disclosed plans to issue a sukuk (the Islamic equivalent of a sovereign bond) to raise cash from the petrodollar economies of the Middle East, but has not stated how much will be raised through the Sharia-compliant government paper.

The government plans to pump in an additional Sh20 billion to support police operations through acquisition of helicopters, vehicles and surveillance equipment.

Other projects the government is focused on implementing include the issuing of laptops to school pupils, which has been allocated an additional Sh17.5 billion.

The Treasury said the construction of the standard gauge railway line from Nairobi to the shores of Lake Victoria will begin during the financial year 2015/16.

The upgrading of existing railway lines (Nairobi to Malaba, Nakuru to Kisumu, Nairobi to Nanyuki, Voi to Taveta among others) will also start.

Analysts have estimated that the infrastructural projects will contribute to a one-off two to 2.5 per cent growth in the economy. The Treasury estimates that the budget will help the economy grow by 6.9 per cent in 2015.

The government has said that all contractors involved in construction projects must source at least 40 per cent of their materials from the local market, ensuring that some of the money flows into the economy.

The National Youth Service, which the State is using to create employment, has got an allocation of Sh11.5 billion.

However, allocations to the Uwezo Fund, the Youth Enterprise Fund, the Women Fund and the Constituency Development Fund have been sliced to Sh32 billion from Sh35 billion.

Parliament is also set for a Sh200 million cut, with the Treasury’s allocation for the legislators being Sh22.9 billion down from Sh23.1 billion.

Kenya’s budget has been growing at a rapid pace in the past five years as it seeks to make up for decades of low development expenditure and to match growing demands of salary increments by the public service.

However, low absorption rate by the line ministries have denied Kenyans the opportunity to see the anticipated economic growth arising from their implementation.

“The slower-than-programmed spending on development budget poses a risk to the fiscal programme, going forward.

In order to prevent this risk from materialising, the government has been pressing line ministries to increase absorption to at least 80-90 per cent as part of performance contracting,” reads the policy statement.

The budget expansion has been accompanied by deepened tax measures to raise revenue to support government ambitions.

Mr Rotich said the government plans to increase its focus on the informal sector to grow its revenues, conduct strategic tax audit and modernise the Kenya Revenue Authority (KRA) among other measures to ensure more collections.

The government also plans to re-organisation of the KRA into two semi-autonomous agencies — the Inland Revenue Agency and Customs and Border Protection Agency — in order to seal revenue losses.

Recent policies introduced by the KRA to grow revenues include the reintroduction of the capital gains tax charged on sale of shares, real estate, private equity and government agencies.

The taxman has also been pushing for increased collection from rental income with proposal of having the tenant submitting the tax to the authority instead of the landlord.

The budget plan is set to be submitted to the parliamentary budget committee which will subject it to public debate before making amendments and tabling it before the House for approval.