Government expenditure on development projects dropped 42 percent in the half-year ended last month, even as tax collections crossed the Sh1 trillion mark for the first time.
The Treasury data shows that the State spent a meagre Sh70.4 billion on projects compared to Sh121.7 billion splashed in the same period of 2022.
Taxes hit Sh1.05 trillion in the review period from Sh952 billion in the half year to December 2022, but increased spending on debt servicing, pensions and salaries ate the vast chunk of the additional billions collected by the taxman.
Projects such as roads, water, housing and power lines are key to creating jobs given the intense human capital needed to deliver them.
“It is a worrying situation because it compromises on a raft of issues key being employment, spending power and also delivery of public services like roads,” said Ken Gichinga, chief economist at Mentoria Economics.
“The debt (mainly the external debt) has considerably gone up due to the exchange rate and this has in turn put the government in a tight spot.”
Kenya’s debt servicing obligations have been growing due to maturing loans and a fast-weakening shilling that has ballooned dollar-denominated debt. For example, Sh600.7 billion or 57.1 percent of the taxes went to debt servicing in the period from Sh503 billion (52.8 percent) spent on the same in the same period of 2022.
The billions spent on projects in the half-year represent 15 percent of the Sh457.2 billion allocated to the sector in the full year ending June, fuelling fears that the government will not meet the target.
The drop in the spending contradicts pledges by the Treasury to allocate more funds to finance development projects and help create jobs.
“The government should focus on growing the development budget to accelerate economic development in the country. This can be achieved by cutting down on recurrent expenditure and non-core activities,” said Treasury Cabinet Secretary Njuguna Ndung’u in the review of the budget for the current financial year.
The Treasury data shows that expenditure on Consolidated Fund Services (CFS) jumped 20 percent to Sh667.9 billion in the half-year to December from Sh555.8 billion in the same period last year.
The CFS expenditure accounts for the payment of debt, salaries and pension and the three have been rising, further exerting more pressure on the Exchequer.
Prof Ndung’u last year warned that the Exchequer was struggling to pay salaries, highlighting a dire state of affairs that has seen development projects take a hit.
