Economy

Will Ruto budget axe fall on the vulnerable?

ruto

President William Ruto. PHOTO | SILA KIPLAGAT | NMG

Fear looms large over the fate of social protection programmes for vulnerable Kenyans amid the expected budget cuts, with analysts warning that reduced funding could worsen poverty in the country.

The government is expected to cut its expenditure by Sh300 billion for the ministries, departments, and agencies (MDAs) in the current 2022/2023.

However, even as they welcome the austerity measures, budget analysts are concerned that the plan may hit programmes such as the credit guarantee scheme, Linda Mama Boresha Jamii — a national government scheme to provide free maternity services to expectant mothers, — Hunger Safety Net Programme (HSNP) targeting four drought-hit counties of Turkana, Marsabit, Mandera and Wajir, and cash transfer programmes to the poor, elderly and vulnerable households.

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Withdrawing funding to such programmes would hit hard households amid soaring inflation living and the ravaging impact of the Covid-19 pandemic that led to declined incomes.

“The only time budget cuts can be bad is when they touch on these programmes. But when there is fiscal consolidation, they are normally the ones affected. It is not clear whether the budget saving will be cut completely or re-assigning,” said Abraham Rugo, the International Budget Partnership Kenya (IBPK) country manager.

The new administration of President William Ruto is pushing to slash Sh300 billion from the current budget in a bid to curb wastage and free up the funds needed to fulfil the election campaign promises.

It rode to power on the promise of helping lower the cost of living, creating jobs, and turning around sectors such as agriculture and small and medium enterprises (SMEs).

The Sh300 billion budget cut is expected to reduce the projected budget deficit to 5.8 per cent of GDP from the initial 6.2 per cent, according to the Treasury.

"We intend to contain growth in non-priority expenditures to reduce the fiscal deficit," Treasury Cabinet Secretary Njuguna Ndung'u told a recent meeting on budget preparation.

Kenya has reached a staff-level agreement with the IMF to access an additional Sh25.51 billion ($209.49 million), following a top-up in the latest review to battle biting drought and cushion the country from foreign funding shocks for essential imports like petroleum products under the current budgetary support programme.

Prof Ndung’u said that based on the review, Kenya has made significant progress on fiscal adjustments required to address debt vulnerabilities.

“The programme has strengthened Kenya's ability to navigate the recent multiple shocks — the Covid-19 pandemic, the impact of the war in Ukraine, the tightening global financial market conditions and the continuing drought affecting food and energy prices,’’ Prof Ndung’u said.

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But the office that advises Members of Parliament on budget planning has raised doubts about the ability of the new administration to fund its ambitious economic growth and job creation plan while enforcing spending cuts.

The Parliamentary Budget Office (PBO) says that President Ruto’s administration will struggle to fully implement the interventions whose cost it estimates at Sh2.67 trillion in the five years to 2027 given the government’s current financial constraints.

The supplementary budget highlighting the cuts is expected to be out in the coming weeks. However it is not clear where the axe falls.

The entire budget for foreign travel, training and purchase of motor vehicles and furniture has been scrapped, making them the first casualties of the new administration's attempt to tame runaway wastage.

The Treasury also cut the budgets of domestic travel, advertising, hospitality, vehicle rentals and communication by 75 per cent in a bid to reduce the Sh1.18 trillion recurrent budget of the current financial year by at least one quarter.

The cuts are aimed at reducing the need to borrow Sh862.5 billion to plug the hole in this year’s budget which stands at Sh3.3 trillion.

“Given the extensive nature of the consolidation, it is likely all the significant expenditure items will be affected, including social protection programmes. This would be unfortunate, given the ravaging economic effects of the Covid-19 pandemic,” Ken Gichinga, chief economist at Mentoria Economics, said.

The fiscal consolidation plan is on the backdrop of the high cost of living fuelled by rising food and energy prices, which are eroding incomes and reversing gains in food security.

According to the World Bank Kenya Economic Update released in June, the economy is feeling the heat from the impact of the war in Ukraine, which is also weighing on the global economic recovery from the pandemic.

This is amid the current drought, which is having a devastating effect on food security and livelihoods in parts of the country and is necessitating increased social spending on food assistance.

The multi-partner Integrated Food Security Phase Classification, for instance, estimates that 3.1 million Kenyans (out of 13.6 million) living in counties with arid and semi-arid land are food insecure.

“While Kenya’s economy has been resilient, the multiple recent shocks show the urgency of improving social protection mechanisms to cushion the most vulnerable households,” said World Bank Country Director, Keith Hansen.

“This will enable Kenya to move away from other more costly and less well-targeted support measures such as fuel subsidies.”

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