Budget experts in Parliament are pushing President William Ruto’s government to switch to zero-based budgeting, a more radical approach to spending, in a bid to reduce the ballooning public debt
The Parliamentary Budget Office (PBO), which advises lawmakers on the economy and budget, says re-costing of services every two years is one way that the Treasury can use to cut recurrent and wasteful spending.
If adopted, the current budget will be shelved and a new one crafted from scratch, in a spending plan that will force all vote heads to justify their expenses for each new period.
The fiscal experts told an induction workshop for newly elected lawmakers that zero-based budgeting will ensure that the budgetary requests made by government ministries, departments and agencies are exactly what is needed in a financial year
The team said there is a feeling most budget items are over-inflated and therefore the need to start budgeting after re-costing all services
“One of the ways to cut recurrent spending and wasteful expenditures is doing zero-based budgeting. We need for instance to re-cost the amounts needed to maintain an MP for a year and allocate the exact budget. The Treasury had proposed this but they didn’t follow it through,“ the experts told lawmakers.
The office warned that Kenya’s public debt will hit Sh9.4 trillion by June next year, leaving the country with borrowing headroom of less than Sh600 billion. The Parliamentary Budget Office said the current budget deficit stands at Sh862.3 billion.
“The way forward for Kenya is to drastically reduce the debt momentum by cautiously cutting spending or carefully raising taxes, refinancing, rollover and restructuring of the existing debt burden and faster economic growth,” the PBO said in its brief to lawmakers.
The Treasury in April tabled in Parliament a Sh3.3 trillion budget for the current financial year with the government expected to raise Sh2.4 trillion and borrow Sh862.3 billion to plug the deficit.
The 12th Parliament in June voted to increase the debt ceiling to Sh10 trillion to allow the new administration to finance the current budget
Kenya’s public debt, according to the parliamentary budget office, stood at Sh8.56 trillion as at May this year. The budget experts estimated that the public debt stock stood at Sh8.7 trillion as at end of last week.
The parliamentary think tank said the debt comprises Sh4.29 trillion from external borrowing and Sh4.27 trillion from the domestic market.
Data provided by the budget office shows that China tops the list of bilateral lenders at Sh796.5 billion while others account for Sh311 billion.
Of the multilateral lenders, the IDA, the lending arm of the World Bank tops the list with Sh1.2 trillion, ADB (Sh383.2) trillion, IMF (Sh207.2 billion) and others (Sh117.3 billion).
On commercial lending, sovereign bonds account for Sh828.9 billion of external debt, banks (Sh281.3 billion), Supplier credits (Sh12.2 billion) and guaranteed debt (Sh158.9 billion).
“We project that the country’s public debt will hit Sh9.4 trillion by June next year. Remember that Parliament raised the debt ceiling to Sh10 trillion in June. It is certain that we will be amending this debt ceiling again,” Martin Masinde, the acting director, BPO told lawmakers during an induction training.
“The biggest risk is that we have a public-private partnership that generates a form of debt in the name of contingent liability. For example, the Lake Turkana Wind Power project contract saw taxpayers foot some huge bills because the government was not ready to evacuate power,” Dr Masinde said.
The PBO cited fiscal deficits, slow economic growth, interest rates on loans and exchange rate fluctuation as the main drivers of debt.
Central Bank of Kenya (CBK) governor Patrick Njoroge had earlier told the lawmakers that for every Sh100, Kenya spends Sh44 to repay debt.
Kenya will spend Sh1.36 trillion for debt repayment out of Kenya Revenue Authority’s (KRA) Sh2.03 trillion collections, underlining the heavy debt burden the new government has inherited from the Jubilee administration.
The country with a wage bill of Sh950 billion will find it hard to balance servicing the debt while still running government operations.