Treasury cuts project budget by more than Sh200bn

The drop corresponds with a Sh155.4 billion reduction in government borrowing as the State trims its debt appetite.

Some of the most affected are the foreign financed development projects whose allocation has been slashed by more than half. The government remains the biggest buyer of goods and services and reduced spending has an effect on economic growth which is projected at six per cent this year.

The World Bank had cited sustained infrastructure investments as one of the factors to power Kenya’s growth.

Project spending is critical to building infrastructure and putting money in private hands through buying of raw materials, which ultimately creates jobs.

Cement-makers, steel manufacturers, contractors and the thousands of workers who are employed in infrastructure projects benefit from public spending and are likely to feel the pinch from the cut back.

Delay in spending the development budget also means that projects go beyond their timelines, affecting viability.

READ: Only 10pc of development budget spent with a quarter of year gone

While Kenya’s economy is doing better than others on the continent, it is struggling to create enough jobs, which means a large section of the population is not enjoying the benefits of the economic expansion, the World Bank said.

Most of the jobs being created are of low productivity in the informal services sector, the bank said.

In the next decade, nine million young people are expected to join the labour market, with most of them getting work in small businesses due to a scarcity of formal sector jobs, it added.

The cut in development spending is likely to be made official through a supplementary budget expected in coming days.

Treasury data shows a total of Sh41.8 billion had been spent on development in the three months to September and the government will have to heavily pump in funds if it is to meet its stated target.

The slow absorption of development funds at the start of the year has traditionally been blamed on cumbersome procurement procedures, which delay the start of projects.

The trimming of foreign borrowing to bridge the budget deficit comes on the back of criticism for Treasury’s debt appetite with economists warning that Kenya should slow down on uptake of loans.

Citi and Renaissance Capital last month warned that Kenya’s large budget deficit could hurt the shilling and said the Treasury should cut down on borrowing to finance the gap.

“The larger deficit means higher debt for Kenya, which already has a debt­-to-GDP rate of around 55 per cent,” Renaissance Capital sub-­Saharan Africa economist Yvonne Mhango had said.