Treasury Cabinet Secretary Njuguna Ndung’u, a former central bank governor, is tabling his first Budget in Parliament, in a tradition marked in East African Community member states.
According to the EAC Treaty, Finance ministers of the partner states read their budgets simultaneously.
The Budget for the fiscal year 2023/2024, which begins on July 1 to June 30 next year, is expected to establish President William Ruto’s bottom-up economic model amid a tough economic setting clouded with high cost of living and pressure to repay other maturing debts.
Speaking ahead of the Budget speech, Prof Ndung’u described the macroeconomic environment defining Kenya Kwanza’s debut Budget as “the perfect storm”.
He said that preparing the Sh3.6 trillion spending plan has been a delicate balancing act as the government seeks to unlock new revenue through the much-debated Finance Bill 2023.
“It's the first Budget that I am going to present...It is also the first Budget under the Bottom Up Economic model. The premise of that is that we are coming from a very devastating kind of economic slowdown. We call it a perfect storm if you want to replicate what the Economic Advisory Team of the President has said," Prof Ndung’u said in an interview on Wednesday.
Prof Njuguna Ndung'u, the Treasury Cabinet Secretary, displays the Budget briefcase ahead of his maiden Sh3.6 trillion budget speech in Parliament on June 15, 2023. PHOTO | SILA KIPLAGAT | NMG
Budget allocations
Executive, which comprises ministries, departments and agencies (MDAs), will receive the bulk of the allocation at Sh2.16 trillion.
Parliament, which comprises National Assembly and Senate, will receive a total of Sh40.4 billion.
Judiciary has been allocated the least amount of money at Sh22.99 billion.
The 47 counties will receive Sh385.4 billion as part of the shareable revenue.
Other expenditure items will be what is known as the Consolidated Fund Services (CFS). CFS has been allocated a total of Sh1.836 trillion, taking the total spending in the financial year 2023/24 to Sh4.45 trillion.
Highlights of the Budget speech
Economic context for 2023/24 Budget
The 2023/24 budget has been prepared in an environment of high inflation owing to the several shocks that have hit the country's economy.
The biggest shock has been a crippling drought, the worst in 40 years. The drought has depressed harvests and pushed up food prices, with inflation rate remaining outside of the upper bound target of 7.5 percent for the last 12 months to June.
The high cost of living has also been aggravated by a weaker shilling, which is exchanging at a record low of 139.7 against the dollar.
The Russia-Ukraine war has continued to disrupt the global supply chains pushing up the cost of various inputs including fuel and food.
Central banks in advanced economies have also increased interest rates triggering capital flights from frontier and emerging economies such as Kenya. High interest rates have also made it difficult for the country to borrow in the foreign capital markets to finance it's budget.
Hustler Fund
16.67 million Kenyans have used Hustler Fund so far, with 7.1 million being repeat customers.
"So far Sh30.8 billion has been borrowed from this Fund."
"The highest number of times a single borrower has borrowed from the Fund is 50 times."
Savings: Sh1.5 billion
Voluntary savings: Sh1.7 billion
Liquefied Petroleum Gas
Government to tap private investors for the construction of a common user facility for handling imports of cooking gas imports in a bid to lower prices of the commodity.
“A common-user bulk storage facility and handling facility will be constructed through a private sector participation framework to enhance market certainty and stability in the sue of LPG.”
Debt
The fiscal consolidation plan is to gradually reduce the fiscal deficit from 6.2 percent to 5.8 percent of GDP in FY2022/23 and to 4.4 percent in FY 2023/24 and further to 3.6 percent of GDP in FY 2025/26."
Pending bills amounted to Sh537.2 billion for the national government and Sh159.7 billion for county governments as of March 31, 2023.
"The management of pending bills is a challenge."
"Treasury has prepared a Cabinet memo for the set up of a Pending Bills Verification Committee which will pave way for pending bills to be settled as a first charge. Latest quantum of pending bills is Sh532 billion."
National Treasury Cabinet Secretary Prof Njuguna Ndung’u reads the 2023/2024 Budget speech in Parliament on June 15, 2023. PHOTO | SILA KIPLAGAT | NMG
Public debt management
"Public debt remains sustainable but with a high risk of debt distress on external shocks."
"Kenya has not accumulated debt service arrears. We will honour our debts."
Debt sustainability will be achieved through increased revenue mobilisation.
"I wish to assure Kenyans and investors that our fiscal position remains strong and that we remain committed to meeting our obligations including the Eurobond maturing in June 2024."
Fiscal deficit
The fiscal deficit i projected at Sh718 billion from Sh846.9 billion.
Manufacturing
Kenya to looking adopt decarbonised manufacturing (emissions-free production by switching from fuel-based sources of energy) aimed at achieving zero carbon by 2050.
Aviation
The government will turnaround Kenya Airways into a pan-African carrier to cut its reliance on the exchequer.
Digital lenders
There were 32 digital lenders under CBK supervision by end of 2022.
"CBK will work with other agencies to ensure all digital lenders come under regulation to protect consumers."
Banking
CBK to soon launch upgraded central securities depository code to improve financial market liquidity, enhance operational efficiency in domestic debt market and promote market deepening.
Saccos
Sacco Societies Regulatory Authority (Sasra) working on Saccos Societies Act 2008 to provide the licensing and supervision of shared Sacco services platform to lower operating costs for small Saccos.
The 12 year-old Prudential guidelines for Saccos to be reviewed to allow for a resolution mechanism for financially distressed Saccos.
"Sasra has proposed amendments to the Sacco Societies Act, 2008 to provide for a framework for appointment of trustees for deposit guarantee fund for Saccos in Kenya."
Grants
The government will put in place policies to minimise the payment of fees (commitment fees) to curb the impact of underabsorption of grants.
Kenya Power
Government’s four-point turnaround strategy for Kenya Power:
Transfer of all transmission assets/ lines to Ketraco.
The government will settle Rural Electrification Scheme (RES) operations and maintenance costs, which had a deficit of Sh19.4 billion as at June 2022 and ensure KPLC, RES and Renewable Energy Corporation enter into a commercial for the future rural electrification schemes maintenance costs.
The government will develop and implement a turnaround strategy that includes the reduction of systems losses from 22.4 percent to 14.4 percent by end of June 2025.
The government will establish a new governance structure for Kenya Power that will give private sector fair representation reflecting the company’s shareholding structure.
“The government will restructure the balance sheet mainly focusing on the huge loan balances, payable and receivables. This will in turn address the current huge liquidity gap.”
Unclaimed Financial Assets Authority (UFAA)
UFAA Act to be amended to allow people to pick claimants of their wealth or dedicate the wealth to a course of their choice. The Act does not designate a beneficiary or to a course of their choice. Therefore, the CS has proposed to amend the Act to empower claimants to designate beneficiaries of their choice or to a course of their choice.
Procurement
Treasury has directed prompt payments of all procurement entities to ensure prompt payment of all contracts.
Insurance
Insurance Amendment Bill, 2023 submitted to Parliament to provide for offences related to management an insurer as well as give Insurane Regultory Authority more powers in regulating the sector.
Competition Authority
The authority will conduct surveillance particularly in manufacturing and agro-processing sectors to protect Micro, Small and Medium Enterprises (MSMES) from abuse of buyer power.
- Implement codes of practice to ensure MSMES are protected from powerful buyers.
- Screen and investigate suspected infractions such as abuse of dominance conduct, price discrimination, predatory pricing...to ensure a level playing field.
Agriculture
Fertiliser will be subsidised to improve food production in the country. Sh5 billion for fertilise programme allocated.
Transport and Infrastructure
National Treasury achieved financial closure of two clusters of urban roads projects valued at Sh15 billion under the annuity programme.
"Due to the limited fiscal space the government has strengthened the public private partnership (PPP) framework to leverage on private sector expertise."
Highlights of agreements reached under EAC common Customs Union:
Kenya to import rice at EAC tariff of 35 percent instead of 75 percent, and wheat at 10 percent instead of 35 percent to bridge local production deficit.
Kenya allowed to continue imports of inputs for manufacture of baby diapers duty free for one more year, and impose duty of 35 percent on imported diapers for a year.
Duty free window for import of inputs for manufacture of animal feeds extended for one year. “Locally manufactured animal feed is expensive and is contributing to food inflation.”
Kenya allowed to extend for one year the imposition of 25 percent duty on imported mobile phones. Duty free window for importing inputs for local assembly of mobile phones extended for a year.
Spending
Housing and Land
"The cost of housing is a heavy burden to the majority of Kenyans and is the main factor driving the proliferation of slums in the country."
The government plans to use housing as an economic opportunity through employment.
Sh1.2 billion for housing unit for police and prisons
Sh637 millon for municipal programmes
Sh150 million footbridges
Sh300 million development of appropriate building technology
To ensure legitimacy of land ownership: “I propose budget allocation of Sh1.2 billion for the processing and registration of title deeds, Sh2.6 billion for settlement of the landless, Sh755 million towards digitisation of the land registry and Sh138.3 million for construction of land registries.”
Technology
Treasury proposes to effect budget allocation of Sh15.1bn to fund initiatives in the ICT sector.
Sh600 million for the government shared services to fastrack the development of Konza technopolis city.
Sh4.8 billion for the horizontal infrastructure phase one
Sh1.2 billion for Konza data centre and smart city facilities
Sh475 million for construction of Konza complex phase one B
Sh5.7 billion for the Kenya Advanced Institute of Science and Technology at Konza
Sh1.3 billion for maintenance and rehabilitation of the national optic fibre backbone phase two expansion cable
Sh583 million for the maintenance and rehabilitation of the last mile county connectivity network.
"The digital superhighway will play a critical role in enabling govt to achieve the objectives of BETA (Bottom-Up Economic Transformation Agenda) as well as enhancing revenue collection through automation."
Security
Security is critical for creating a safe environment for investment and protection of the citizens.
Proposed the allocation of Sh338.2 billion to support operations of KDF, NPS, NIS and Kenya Prison Service.
Kenya Defence Forces - Sh144.9 billion
National Police Service - Sh98.6 billion
National Intelligence Service - Sh44.3 billion
Kenya Prisons Servie - Sh31.3 billion
Health
Treasury proposes to allocate Sh141.2 billion (3.8 percent of the budget) to health sector.
Universal Health Coverage has been allocated Sh18.4 billion.
Kenya Covid-19 Emergency Response Project has received Sh3.7 billion.
Free maternity healthcare allocated 4.1 billion.
Managed Equipment Services has been allocated Sh5.9 billion
Medical cover for the elderly and severely disabled persons has received Sh1.7 billion.
To lower cases of Malaria and TB and HIV/AIDS in the economy, Sh24.8 billion has been proposed, under Global Fund in order to lower cases.
Sh4.6 billion has been proposed to enhance vaccines and immunisation programmes.
Health research and innovations allocated Sh4.9 billion.
Sh1.9 billion has been allocated for the construction of cancer centre at Kisii Level 5 hospital
Sh500 million for strengthening of cancer centre management at Kenyatta National Hospital.
Sh155 million for the establishment of regional cancer centres "in order to promote early diagnosis and management of cancer, and reduce the burden of treatment among Kenyans."
"The government is committed to deliver universal health coverage to ensure every Kenyan attains a dignified healthcare at a minimum cost."
Infrastructure
Infrastructure has been allocated Sh244.9 billion as one of the enablers of BETA.
Sh37.4 billion for the second phase of the standard gauge railway (SGR).
Sh579 million for rehabilitation of locomotives
Sh889 million for development of Nairobi Railway City
Sh1.1 billion for Nairobi Bus Rapid Transit (BRT)
Sh300 millon acquisition of ferries for Lake Victoria
Sh727 million construction and expansion of airports and airstrips
Sh500 million smart driving licence
Sh2.6 billion infrastructure development for Dongo Kundu Special Economic Zone
Fight against corruption
Allocations:
Sh3.9 billion to Ethics and Anti-Corruption Commission
Sh3.6 billion for Office of the Director of Public Prosecutions
Sh8 billion Directorate of Criminal Investigations
Sh8 billion for Office of the Auditor General.
Education
The Treasury has allocated the Education sector Sh628.6 billion, translating to 17 percent of the 2023/2024 budget.
Free primary education Sh12.5 billion
Free secondary education, including insurance under the National Health Insurance Fund Sh65.4 billion
Capitation for Junior Secondary Schools (JSS) Sh 25.5 billlion
Teachers Service Comission (TSC) proposed allocation increased to Sh316.7 billion from Sh300.1 billion
Allocation to university education slashed from Sh108 billion to Sh97.5 billion
Helb allocaton doubled to Sh30.3 billion from Sh15.8 billion
“The government will continue to address inequality in our education system in order to level the playing field for all childen despite of their background.”
Energy
Kenya Power, rural households and businesses and renewable energy win big in Sh62.3 billion allocation in the 2023/24 budget.
Sh33.8 billion allocated to the national grid system
Sh12.1 billion set aside for the Rural Electrification Scheme (RES).
A further Sh11.4 billion will be used to tap and develop geothermal energy sources
Sh3.2 billion will go to supporting alternative energy technologies
Tourism, sports and culture and recreation
Treasury allocates Sh12.5 billion to tourism, sports, culture and recreation.
This includes an allocation of Sh6.4 billion under sports, arts and social development fund.
Sh4.1 billion for the Tourism Fund
Sh2 billion Tourism Promotion Fund
Sh1.1 billion for human wildlife conflict compensation
Sh800 million for wildlife insurance
Sh400 million for maintenance of access roads and airstrips in parks
Sh319 million for drilling of boreholes in protected areas for provision of water for wildlife
Sh226 million for wildlife research facilities
"The government has prioritised expanding the space for creativity including freedom of expression and protection of intellectual property rights. We will also strengthen mainstreaming of arts and culture infrastructure and support cultural production and creative economy. We are also cognisant of the brand value of Kenyans participating and excelling in the international sports arena as of ultimate importance to us."
Manufacturing
Sh26.9 billion budget for development and promotion of industries through various ministries:
Sh4.7 billion for county integrated agro-industrial parks
Sh3 billion for six Export processing zones
Sh3.1 billion to support access to finance and enterprise recovery project.
Sh500 million for Special Economic Zones Textile Park in Naivasha
Sh1.8 billion for construction of an effluent treatment plant at Kenanie in Machakos
Revitalisation of cash crops for industries:
Sh120 million for cotton
Sh62 million for coconut
Sh35 million for cashew nuts
Sh150 million for pyrethrum
Sh100 million for modernisation of co-operative cotton ginneries
Sh134 million for national edible oil crop production project.
Sh270 million for sugar reforms support project
Sh1.5 billion for Kenya industry and entrepreneurship project to provide essential internship opportunities for the youth
Sh300 million for Kenya Youth Employment and opportunity project
Sh332 million for construction of industrial research laboratories
Sh182.9 million for constituency industrial development centres
“In order to improve productivity in the manufacturing sector, the government will adopt value chain-based approach through Bottom-Up Economic development agenda. This will address bottlenecks that have impeded the growth of the manufacturing sector in order to create jobs and enhance the economy’s competitiveness.”
Taxation
Betting and alcohol adverts
Treasury proposes the introduction of a 15 percent excise duty rate of excisable value of fees charged on advertisement by all televisions, print media, billboards, and radio stations in promotion of alcohol, gaming, lottery and price competition.
“Consumption of alcohol, betting, gaming, lottery and price competition are extremely addictive and result in harmful repercussions in the society especially the youth.”
New tax bands
Only 26,676 employees, who constitute 0.8 percent of total employed workers in the country, to be affected by the newly introduced top tax bands of 32.5 percent and 35 percent targeting those earning above Sh500,000 per month.
Internet services inclusion
“To promote inclusion and enhance access to internet data services, I propose to the National assembly to reduce excise duty from 20 percent to 15 percent in respect of fees charged for telephones, internet, data services and fees charged for money transfer services by banks, money transfer agencies and other financial service providers.”
Reporting by Hellen Githaiga, Patrick Alushula, Dominic Omondi, Kepha Muiruri, Sam Kiplagat, Bonface Otieno, John Mutua, Constant Munda, Edna Mwenda, Kabui Mwangi, Linet Owoko, Charles Mwaniki, Lynet Igadwah, and Elizabeth Kivuva.
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