Government ministries, departments and agencies spent the smallest share of their budget on development projects in 11 months of the recently ended financial year, the lowest portion under the Jubilee administration.
The latest Treasury statistics show that development projects accounted for Sh283.12 billion of the Sh2.35 trillion spent at the national level.
The amount, which excludes the foreign funding portion of the development projects, is equivalent to a modest 12.05 percent of the expenditure at the national level at a time Kenya struggled to tap loans from external commercial lenders.
The share of expenditure on capital projects — largely in power generation and transmission as well as roads and bridges— was the smallest in at least eight years, according to an analysis of exchequer issues.
It was smaller than 13.67 percent of the Sh2.09 trillion national government budget in the prior year and 15.60 percent of Sh1.89 trillion budget the year before.
Project spending is critical to building infrastructure and putting money in private hands through buying raw materials, which ultimately create new jobs.
With the government being the biggest buyer of goods and services, reduced spending has the effect of limiting economic activity.
The largest share of expenditure on development projects, excluding foreign funding, was posted in a similar period in 2017 at 21.99 percent, or Sh317.70 billion, of Sh1.44 trillion budget.
At the time, President Uhuru Kenyatta was seeking re-election for the final second term, which will end next month if there will be a round-one winner in the August 9 polls.
Increased spending on development projects such as roads, water, power plants and electricity transmission lines stimulates economic activities, helping create job opportunities and grow government revenue, largely taxes.
A drop in the spending on capital projects, on the other hand, is felt by cement makers, steel manufacturers and contractors, hitting thousands of workers employed in the infrastructure pipeline who largely benefit from public spending hardest.
The Treasury had secured 39.75 percent of the Sh433.16 billion it had budgeted from external loans and grants a month to the end of the financial year in June due to elevated interest rates demanded by creditors.
For example, Kenya abandoned plans to borrow $1 billion (Sh118 billion) from international capital markets — Eurobond — because of high-interest demands of about 12 percent. This is nearly double the 6.3 percent it paid last financial year for a similar amount.
“In our funding for this financial year, we factored in borrowing from the international market, the Eurobond. But we realised as a result of challenges in Russia and Ukraine the cost of borrowing has gone really high,” Treasury Cabinet Secretary Ukur Yatani said in June.
“Last year we borrowed at six percent, right now it stands over 12 percent and this is no longer feasible. That is why we are still exploring options to look at a number of banks that can advance us the money at a cheaper rate, a figure more or less than a figure of last year, an average of six percent.”
The national government has over the years, just like the 47 counties, struggled to observe section 15(2) of the Public Finance Management Act of 2012, which requires at least 30 percent of the total budget in three to five years be invested in capital projects.
Expenditure on recurrent expenses such as salaries, operation, maintenance and administrative costs gobbled up Sh1.02 trillion, or 43.42 percent, of the cash channeled from the public coffers to the national government, while debt repayments took up Sh916.60 billion, or 39 percent, of the disbursements.
The share of pension payments to retirees bumped to 5.41 percent, or Sh127.05 billion, of the national budget in the review period from Sh76.26 billion or 3.64 percent share the prior year.
The drop in share of funds allocated to development came in a financial year Kenya struggled to procure a significant share of budgeted foreign debt funding.
The expenditure on development projects in the review period represents 67.27 percent of the Sh420.88 billion allocation from the exchequer, a drop from 71.26 percent the prior year.
“The Controller of Budget recommends that accounting officers [principal secretaries and chief executives of parastatals] expedite procurement processes to ensure programmes are executed in line with work plans to ensure timely implementation of development activities,” Controller of Budget Margaret Nyakango wrote in the latest budget implementation review report.
Treasury data shows the Department of Infrastructure, largely tasked with roads and bridges, was the only entity which exhausted its development budget.
The department spent Sh69.25 billion in 11 months ended May against a revised budget of Sh63.04 billion for the entire fiscal year, an absorption rate of 109.84 percent.
It was followed by Defence which had a development budget absorption rate of 99.77 percent, Regional Development (99.03 percent), Foreign Affairs (96.44 percent), Gender (95.33) and Wildlife and Forestry (95 percent).
The Department for Heritage had the lowest development budget absorption levels at 22.55 percent followed by Transport (31.62 percent), Shipping and Maritime Affairs (35.72 percent), Crop Development (36.40 percent) and National Treasury (39.94 percent).
