Treasury looks to save Sh4 billion in new austerity plan

Treasury secretary Henry Rotich Wednesday announced new austerity measures, signalling that the government is yet to steer clear of the cash crisis it recently attributed to a shortfall in revenue collection. 

The measures, involving deep cuts on non-essential budget items like travel, motor vehicle maintenance and conferencing, are expected to save taxpayers up to Sh4 billion and help ease the cash crunch in government.

Mr Rotich said he had issued a circular to accounting officers in all ministries asking them to cut expenditure plans to the bare minimum in an effort to plug budget holes caused by revenue shortfalls.

Targeted items such as travel, hospitality and car maintenance cost Sh17.4 billion last year and Mr Rotich said he was looking at savings of between 20 per cent and 30 per cent, translating to savings of up to Sh4 billion.

The austerity measures are expected to hit Members of Parliament and Members of County Assembly (MCAs), who consume the largest share of the government’s travel budget, hardest.

“I have suspended benchmarking tours, at both national and county governments and expect domestic travel to be rationalised,” said Mr Rotich during a public hearing on next year’s budget.

Media companies, oil dealers and hoteliers — who have been hit hard by the tourism slump — are also expected to feel the heat as the government agencies go slow on advertising, motor vehicle repairs and hospitality spending. Mr Rotich said that savings from the austerity measures should help the government to lower its borrowing target of Sh222 billion.

The Kenya Revenue Authority (KRA) collected Sh300 billion in the first three months of the financial year against a target of Sh328 billion, forcing the State to cut its expenditure plans.  The shortfall was attributed to a slowdown in the economy arising from the increase in interest rates and depreciation of the shilling.

Mr Rotich also told Parliament that the Treasury had trimmed its economic growth expectations to 5.8 per cent from 6.0 per cent in October. The target stood at 6.5 per cent at the beginning of the year.

READ: Rotich cuts growth prospects citing tighter monetary policy, El Nino

“We are also going to the festive period but printing Christmas cards, calendars, T-shirts will not be entertained,” Mr Rotich said.

The austerity measures are expected to be particularly painful for the hotel sector which has been relying on conferences and local tourism to stay afloat following a steep slump in foreign tourist arrivals in the past two years. 

Previous announcements of expenditure cuts by the government have not yielded much, having been largely ignored by officials.

READ: Ministries defy Rotich as spending on travel, hospitality increases to Sh6bn

Besides, the Cabinet secretary has little control over the spending by county governments that have been the most notorious in benchmarking trips that cost taxpayers millions of shillings.

The Parliamentary Service Commission, an independent body that manages the salaries and other remuneration perks for MPs, usually records the highest expenditure on domestic travel.

Mr Rotich last year announced bold austerity measures, including a voluntary pay cuts for the executive and top management of parastatals.

But 18 months later, the account holding the austerity money at the Central Bank of Kenya had a paltry Sh36 million, indicating very low compliance rate. The Treasury also announced that it was asking ministries to prove that their development plans offer maximum benefits to citizens before they are allocated cash in the budget.

The government has previously reported low absorption rates for development cash that has been attributed to poor budget processes and failure to prioritise projects.

“Treasury staff have been directed not to allow allocation of funds to projects without the necessary supporting documentation clearly showing how the project in question is linked to the strategic objectives of the ministry,” said Mr Rotich.

The Treasury is also betting on increased tax collections from the recently passed Excise Bill to shore up the government’s financial position. The taxman has, however, warned that he did not expect to recoup the Sh10 billion lost to delayed enforcement of the law.