This comes amid continued pressure from the International Monetary Fund (IMF) on policy and governance reforms, as part of conditions for continued support.
IMF on Wednesday said it had reached a staff-level agreement to disburse $433 million (Sh52.8 billion) to Kenya, subject to approvals. It however maintained that the government must continue with fiscal adjustment to address debt vulnerabilities.
The funds are part of a $2.34 billion (Sh285 billion) loan approved in May last year.
A staff team from IMF visited Nairobi from October 25 to November 8 to discuss progress on reforms and the government’s policy priorities, which the World Bank has also been keen on.
Part of reforms needed is reducing budget deficit to tame back-to-back borrowing for budgetary support, and cutting wastage in state agencies.
The country’s debt stood at Sh8.6 trillion in June this year, Central Bank of Kenya data shows, having increased from Sh7.7 trillion last year.
IMF is keen on cutting the budget deficit and publishing of beneficial ownership information for awarded government contracts, which it says will be a major step towards transparency and accountability.
It also wants reform of financially troubled state-owned enterprises—including Kenya Airways and Kenya Power.
IMF further discouraged subsidies, with a major one being on fuel which had a budget of up to Sh100 billion, and had consumed about Sh71.2 billion in six months.
In September, Ruto directed a budget cut targeted at saving at least Sh300 billion.
To help achieve this, National Treasury, led by CS Njuguna Ndung'u has now issued a directive targeting items such as local and foreign training, office and general supplies, hospitality supplies and local and foreign travel.
He is also keen to stop any new projects or existing ones, which have low absorption rates or challenges of implementation.
Treasury has directed meetings and taskforce engagements be held in boardrooms, new training approvals be suspended and requisition for lunches be limited.
Approvals for purchase of office furniture, fittings, computer and ICT materials have been suspended.
"Approvals for workshop and retreats to remain suspended except in exceptional circumstances,” Treasury says in the memo.
For approval of any activity including those supported under donor framework, there has to be a demonstration of sufficient funding under the appropriate budget head.
Ruto’s administration is also expected to carry out a major parastatals reforms that could culminate with merging of entities with repetitive mandates.
The government is targeting to cut the budget deficit by five per cent in the next five financial years to 2026/27 in a bid to ease the debt burden.
Fiscal deficit is projected to decline to Sh862.5 billion equivalent to 6.2 per cent of GDP in the financial year 2022/23, from Sh1.02 trillion.
In the current financial year, recurrent expenditure is Sh2.2 trillion on the projected at Sh3.3 trillion, with government having to borrow to bridge the deficit.
“There has been good progress on fiscal adjustment needed to address debt vulnerabilities though pressures remain elevated. Looking forward, it will be important to move ahead with structural and governance reforms,” IMF said in a statement shared yesterday.
Nevertheless, it notes there has been good progress on fiscal adjustment needed to address debt vulnerabilities, though pressures remain elevated.
The overall deficit on cash basis declined from 8.2 per cent of GDP in financial year 2020/21 to 6.2 per cent of GDP in FY2021/22.
This was supported by strong tax revenue, which increased from 12.6 to 13.7 per cent of GDP.
However, a constrained borrowing environment meant that planned external commercial financing did not materialise.
The lack of funds contributed to 0.7 per cent of GDP in unpaid obligations that were carried over to FY2022/23, IMF notes.
Significant un-budgeted spending in the early months of this fiscal year, much of it for fuel subsidies, pose an additional challenge, it says.
The new government is in the process of formulating a supplementary budget for FY2022/23 that will institute significant spending cuts, with a view to reducing the deficit from the previously programmed level of 5.9 per cent of GDP, while increasing allocations for drought interventions.
Steadfast progress in revenue mobilisation, anchored on the medium-term revenue strategy that is under development, as well as tight spending controls will be important to deliver further deficit reduction, IMF said.
This will also put the debt to GDP ratio firmly on a downward trajectory.
“Proactive monetary policy will help anchor macroeconomic stability,” it said.
