Budget cuts of 300 billion shillings await CS

Economy

Budget cuts of 300 billion shillings await CS


Vice President Rigathi Gachagua (left), President Dr. William Ruto (center) and First Cabinet Secretary Musalia Mudavadi at State House in Nairobi on September 27, 2022. PHOTO | EVANS HABIL | NMG

Travel, entertainment, training and advertising budgets will be the primary targets of the 300 billion shillings budget cuts announced by President William Ruto in a bid to reduce public borrowing to cover the day-to-day running costs of government.

Dr Ruto ordered the Treasury to work with other ministries to cut by at least a quarter the recurrent budget of almost 1.18 trillion shillings for this financial year ending in June 2023.

The plan, he said, will reduce the need to borrow 862.5 billion shillings to fill the 3.3 trillion shilling hole in the budget for this financial year.

Savings from what promises to be perhaps the deepest and most brutal budget cuts in decades will ease the pressure to borrow ‘because the market can’t sustain the kind of borrowing we’re doing as a government”.

“The government should never borrow to fund recurrent expenditures. It’s not fair, it’s not prudent and it’s not sustainable. It is simply wrong. We must bring our country and ourselves to their senses,” Dr Ruto said in his inaugural address to a joint session of the National Assembly and the Senate on Thursday.

“Over the next three years, we must reverse this trend and return to a situation where the government contributes to the national savings effort by keeping recurrent expenditure below revenue levels.”

The proposed cuts will likely start with less essential spending on things like domestic and foreign travel, expensive luxury cars for senior officials, entertainment, training and advertising.

Other budgets likely to target will be gifts, flowers and tea in government offices.

The cuts will be accompanied by a hiring freeze and wage increases for civil servants, which could run counter to the new administration’s campaign pledge to improve the pay of security officers such as police officers. .

The government will also likely suspend the launch of new development projects and revise the budget of existing projects.

The current budget, prepared by the outgoing Jubilee regime and approved by the previous parliament, is projected at 3.54 trillion shillings.

This includes 1.57 trillion shillings for the consolidated service fund largely repayment of public debt (1.39 trillion shillings), 1.18 trillion shillings for recurrent salaries and running of the national government, 424 39 billion shillings for development projects and 370 billion shillings for the 47 counties. .

“Our financial situation is not very good. For Kenya to become a high income country, we need to invest at least 25% of our GDP [gross dom4estic product]said Dr. Ruto.

“Our current national saving is less than 10% of GDP, which translates into an investment saving gap of 15%. Over the past decade we have sought to close this gap with public borrowing.

The increase in government borrowing, the president said, has “undermined the contribution of the corporate sector to national savings and investment efforts” and that a reduction in borrowing will “solve the problem of the government’s crowding out of private sector of the credit market”.

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