Sh300bn budget cuts await CSsFriday September 30 2022
Travel, entertainment, training and publicity budgets will be the first targets of the Sh300 billion budget cuts announced by President William Ruto in the push to reduce public borrowing to meet the costs of the day-to-day running of the government.
Dr Ruto has directed the Treasury to work with other ministries to reduce the nearly Sh1.18 trillion recurrent budget for this fiscal year ending June 2023 by at least one quarter.
The plan, he said, will reduce the need to borrow Sh862.5 billion to plug the hole in the Sh3.3 trillion budget for this financial year.
The savings from what promises to be perhaps the deepest and most brutal budget cuts in decades will ease the pressure to borrow “because the market cannot sustain the kind of borrowing we are doing as government”.
“The government should never borrow to finance recurrent expenditure. It is not right, it is not prudent, and it is not sustainable. It is simply wrong. We must bring ourselves and our country to sanity,” Dr Ruto said in his inaugural address to a joint sitting of the National Assembly and Senate on Thursday.
“Over the next three years, we must reverse this and go back to a situation where the government contributes to national savings effort by keeping recurrent expenditure below revenue levels.”
The proposed cuts are likely to start with less essential expenditure on items such as domestic and foreign travel, expensive luxurious cars for top government officials, entertainment, training and publicity.
Other budgets likely to target will be gifts, flowers and tea in government offices.
The cuts will accompany a freeze in hiring and salary increases for public servants, which may go against the new administration’s campaign pledge to improve the pay for security workers such as police officers.
The government will likely also suspend the initiation of new development projects and review the budget for the existing ones.
The current budget, prepared by the outgoing Jubilee regime and approved by the previous parliament, is projected at Sh3.54 trillion.
This comprises Sh1.57 trillion for consolidated services fund largely repayment of public debt (Sh1.39 trillion), Sh1.18 trillion for recurrent salaries and running of the national government, Sh424.39 billion for development projects and Sh370 billion for the 47 counties.
“Our financial situation is not very good. For Kenya to grow to an upper-income country, we need to invest at least 25 percent of our GDP [gross dom4estic product],” Dr Ruto said.
“Our current national saving is below 10 percent of GDP which translates to an investment savings deficit of 15 percent. Over the last decade, we have sought to close this gap with public borrowing.”
Increased government borrowing, the president said, has “undermined the business sector contribution to the national savings and investment efforts” and that a reduced borrowing “will address the problem of government crowding out the private sector from the credit market”.