Cabinet Secretary for National Treasury and Economic Planning Prof Njuguna Ndung'u before the Committee on County Public Investments and Special Funds at KICC, Nairobi on April 24, 2023. PHOTO | DENNIS ONSONGO | NMG
After going through the Budget, Parliament has summed the total size of the new spending plan at Sh4.45 trillion. For its part, the Treasury in its 2023 Budget Policy Statement says the figure is Sh3.599 trillion.
So what is the actual size of Kenya’s Budget and why the variance?
What are the allocations in President William Ruto’s first budget?
In the fiscal year 2023/24 which begins on July 1 and ends on June 30 next year, the three arms of government—Executive, Parliament and Judiciary—have been allocated some funds for recurrent and development expenditures.
The Executive, which comprises ministries, departments and agencies (MDAs), will receive the bulk of the allocation at Sh2.16 trillion.
Parliament, National Assembly and Senate will receive a total of Sh40.4 billion while the 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.
If the total allocation is Sh4.45 trillion, where is the Sh3.59 trillion coming from?
The confusion begins with CFS. Spending items under CFS include debt repayment (interest and principal), pension, subscription to international organisations and salaries to constitutional office holders.
When the National Assembly’s Budget and Appropriation Committee (BAC), which is chaired by Kiharu MP Ndindi Nyoro, gave the CFS figure at Sh1.836 trillion, it also gave a rider.
“Notable, the CFS expenditure amount includes Sh775.14 billion in interest payments on debt and Sh850.1 billion in principal debt redemptions,” says the BAC report.
For those who say the size of the Budget is Sh3.69 trillion, it is because it is exclusive of principal debt redemptions amounting to Sh850.1 billion.
Why exclude principal debt redemptions?
Martin Masinde, the Director of the Parliamentary Budget Office, an advisory agency for lawmakers, said the difference is just a matter of presentation.
Dr Masinde, whose team helped the BAC with the technical support when crafting the report, noted that in economics there is what are called below-the-line and above-the-line items.
The debt redemption is below the line, meaning that it is not part of net external borrowing and net domestic borrowing.
However, interest payments, which are treated as recurrent expenditure, are part of the above line items just like wages.
“So, for example, if you look at interest payments, it is above the line because it is recurrent expenditure. Interest payment for external and interest payment for domestic is above the line as part of the recurrent expenditure. Debt redemptions for domestic and external are below the line,” said Dr Masinde.
The assumption is that the Treasury will borrow Sh850.1 billion to repay other maturing debts in what is known as refinancing.
One of the largest refinancing items will be the Sh278.4 billion ($2 billion) Eurobond that will be maturing in June next year.
However, in the process of borrowing to pay other maturing debts, the Treasury, through the Central Bank of Kenya (CBK), its fiscal agent, will get additional loans.
The additional loans are known as net borrowing, which will now be used to finance the Budget.
In the upcoming financial year, net external borrowing is estimated at Sh131.5 billion and net domestic borrowing is Sh532 billion.
Is it possible for the government to fail to roll over maturing debt?
“If you don’t get enough cash to roll over you get yourself in a crisis, especially external debt, because then you know you are getting into a default,” said Dr Masinde.
This, he said, has never happened to Kenya. But if financial markets behave like that it will be very dangerous.
“Especially if they (investors) know you are constrained, the only thing they will do is to increase the rate at which you will get the money,” said Dr Masinde.
In an environment with tight liquidity, it has been difficult for countries that intend to refinance their maturing Eurobonds to get cheap loans in what is known as refinancing risk.
Yields on Kenya’s Eurobonds increased, with the Treasury forced to cancel plans to issue a Sh139 billion ($1 billion) Eurobond after it received bids priced at a high of 12 percent.
There are fears that Kenya might have difficulties refinancing its $2 billion Eurobond due to the rise in yields. A yield rise means investors expect higher interest rates and are selling their bonds.
“The upcoming bullet payment of previous commercial loans (Eurobond repayment due in 2024) has created a surge in refinancing risks as the cost of borrowing in the external financial market rises,” said the World Bank in its latest Kenya Economic Update.
It has not been any different in the domestic market where short-term government securities such as the 91-day Treasury bills are at 11.41 percent while the longer-dated Treasury bonds are going for upwards of 14 percent as the government grapples with a tight market.
