The National Treasury has proposed Sh78.6 billion in budget cuts for the fiscal year ending June 30, as part of the exchequer’s efforts to rationalise spending.
The proposal contained in new budget documents from the exchequer is set to bring down the overall budget for the 2023/24 fiscal year by 1.9 percent to Sh3.902 trillion from Sh3.981 trillion approved in the first supplementary budget.
Recurrent expenditure has been projected to dip by Sh33.8 billion or by 1.3 percent to Sh2.76 trillion while interest payments on domestic and external debt are projected to stand at Sh892.8 billion, down from Sh918.8 billion previously.
Spending on development is expected to take a larger hit as the exchequer sets a reduction of Sh44.8 billion, pointing to reduced government spending on infrastructure projects such as roads for the remainder of the fiscal year.
The proposed budget cuts align with the National Treasury fiscal policy which is premised on maintaining a narrow fiscal deficit as a percentage of Gross Domestic Product.
“The medium-term fiscal policy approach seeks to support the government’s bottom-up economic transformation agenda, through continued implementation of a growth-responsive fiscal consolidation that slows the yearly increase in the public debt and puts in place an efficient liability management strategy without affecting the provision of services to the public,” the National Treasury noted.
Subsequent to the proposed budget cuts, the National Treasury estimates the overall fiscal deficit after grants, to improve to Sh785 billion from Sh886.6 billion.
The reduced fiscal balance has cut the planned net financing by the same measure, pointing to reduced short-term future borrowings by the exchequer.
Net foreign financing in the year to June is now estimated at Sh362.2 billion from Sh412.1 billion approved in the first supplementary budget as the exchequer sees reduced project loans.
The target for net domestic financing has meanwhile been set down to Sh422.7 billion from Sh474.5 billion.
The further rationalisation of the 2023/24 budget aligns with recommendations of the International Monetary Fund (IMF) which advised the exchequer to keep the fiscal deficit close to original estimates.
“The National Treasury will submit to Parliament a supplementary II FY2023/24 budget along with revenue measures to contain the deficit. The supplementary budget will target a primary surplus of 0.7 percent of GDP. The improvement in the primary balance, which is warranted to partly offset the higher costs and maintain the overall fiscal deficit close to the level approved FY2023/24 budget,” the IMF indicated in a January report.
The National Treasury has bumped up expectations on total revenues which are expected to rise by Sh23 billion to Sh3.07 trillion.
Ordinary revenues which represent collections by the Kenya Revenue Authority (KRA) have been estimated to improve by Sh47.8 billion to Sh2.624 trillion from Sh2.576 trillion.
The exchequer has nevertheless downgraded expectations on ministerial appropriations in aid which are expected to fall by Sh24.9 billion from their previous projection of Sh470.8 billion.
The National Treasury expects future budgets to attain a sound fiscal consolidation stance backed largely by cuts to non-priority expenditures.
“The fiscal policy stance for FY 2024/25 and the medium-term budget aims to support the bottom-up economic transformation agenda through a growth-friendly fiscal consolidation plan. The consolidation will be supported by enhanced revenue mobilization and rationalization of non-priority expenditure while protecting essential social and development spending,” noted Treasury Cabinet Secretary Prof Njuguna Ndung’u.
Total budget spending in the first six months of the financial year to December 2023 totalled Sh1.704 trillion against a target of Sh1.825 trillion with the missed spending target being attributed to the under-absorption in development and recurrent expenditures by the national government.
