Infrastructure projects budget cut by Sh45.3bn

Road Construction at Kilifi area on March 23, 2024.

Photo credit: Kevin Odit | Nation Media Group

The government has cut the budget for infrastructure projects by 15.7 percent in a move that will affect thousands of contractors and suppliers involved in the construction and rehabilitation of roads, railways, ports, and related services.

In the 2024/25 budget presented by National Treasury Cabinet Secretary Njuguna Ndung’u to Parliament on Thursday, allocation to construction, rehabilitation, and maintenance of roads was cut to Sh193.2 billion compared to Sh244.9 billion in the current fiscal year—a Sh51.7billion chop.

The Treasury has, however, raised the allocation to rail, marine, and air transport to Sh49 billion compared to Sh42.59 billion in the present budget.

This has brought the total allocation to infrastructure to Sh242.2 billion in the financial year 2024/25, marking a Sh45.29 billion chop compared to Sh287.49 billion in the 2023/24 budget read in June last year.

“The government continues to expand and maintain critical infrastructure in roads, railways, sea, and airports to achieve socioeconomic transformation, enhance Kenya’s competitiveness, and facilitate cross-border trade and regional integration,” said Prof Ndung’u.

“Towards this end, I propose to allocate Sh193.4 billion for the development of roads. This includes Sh86.2 billion to support construction of roads, and bridges, Sh37.7 billion for rehabilitation of roads, and Sh69.5 billion for road maintenance,” he said.

The budget cut is part of spending rationalisation by President William Ruto’s administration as total government expenditure and net lending was raised slightly to Sh3.992 trillion in the new financial year compared to Sh3.84 trillion budget for the financial 2023/24.

The Kenya Kwanza administration has limited spending on development projects over the last two years in favour of more priority spending items such as emergency flood relief.

The Head of State has been keen to expand tax revenue collection and reduce borrowing, with the cut in development expenditure one of the measures aimed at achieving the ambitious budget deficit of Sh597 billion which is a significant decline from a deficit of Sh925 billion in the current financial year.

But the move is set to be felt across the country, especially for firms in the construction and related industries which benefit from the billions of State-backed spending on infrastructure projects.

For instance, a section of lenders such as banks and private credit providers have noted a decline in demand for loans from contractors due to the near freeze in government spending on projects.

However, the construction sector continues to suffer due to the spending cuts, which saw the sector’s growth slow down to 3 percent in 2023 compared to faster growth of 4.1 percent in 2022, according to the Economic Survey 2024.

“The decelerated growth was evidenced by declines in key inputs in the construction industry such as cement consumption and volume of imported iron and steel, cement clinkers and non-ferrous metals,” said the survey.

Despite this, the government’s focus in the 2024/25 fiscal year is on upgrading rural access routes, improving urban informal settlement roads, and enhancing critical national and regional trunk roads for maximum economic benefit, said the Treasury.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.