•The projected increase comes amidst debt financing pressures that Ruto’s administration is expected to face next year due to the maturity of Eurobond and SGR loans.
•BROP shows that the governments’ budget in the 2024-2025 financial period, will hit Sh4.24 trillion, even as Ruto’s administration steps up revenue collection measures.
President William Ruto’s administration seems to have thrown out the fiscal consolidation measures in new proposals for the 2024-2025 budget cycle.
The National Treasury Draft Budget Review & Outlook Paper (BROP) 2023, shows that the difference between government’s spending and its income is expected to widen to Sh800.9 billion from an estimated Sh637billion this year.
When the budget deficit is high, it signifies that a larger portion of the government's intended expenses must be covered through borrowing, leading to a rise in the level of public debt.
The budget review paper says that the resulting fiscal deficit of Sh800.9 billion (4.4 percent of GDP) in FY 2024/25 will be financed by a net external financing of Sh296.5 billion (1.6 percent of GDP) and a net domestic financing of Sh504.3 billion (2.8 percent of GDP).
The paper also shows that the governments’ budget in the 2024-2025 financial period, will hit Sh4.24 trillion, even as Ruto’s administration steps up revenue collection measures.
“In the FY 2024/25 total revenue including Appropriation-in-Aid (A-i-A) is projected at Sh3,387.9 billion (18.8 percent of GDP). Of this, ordinary revenue is projected at Sh2,898.9 Dillion (16.1 percent of GDP),” Treasury Cabinet Secretary Njuguna Ndung'u said in the paper.
It adds that the revenue performance will be underpinned by the on-going reforms in policy and revenue administration.
The overall expenditure and net lending is projected at Sh4,24 billion equivalent to 23.5 percent of GDP, comprising recurrent expenditure of Sh2,819.8 billion (15.7 percent of GDP) and development expenditure of Sh968.5 billion (5.4 percent of GDP).
County transfers will take Sh444.8 billion of the budget and Contingency Fund of Sh5.0 billion, respectively.
The projected increase comes amidst debt financing pressures that Ruto’s administration is expected to face next year due to the maturity of Eurobond and SGR loans.
Currently Kenya's total public debt stands at Sh9.182 trillion, just above 67 percent of GDP according to the World Bank, which together with the International Monetary Fund rates as being at a high risk of distress.
“Additionally, the MPC noted the ongoing implementation of the FY2023/24 Government Budget, which continues to reinforce fiscal consolidation. The MPC welcome the efforts by the National Treasury to source new external financing for the budget,” the paper reads in part
The state is now considering new international lenders to ease pressure on local borrowing.
According to the paper as a result of the identified new external financing, the projected net domestic borrowing by the Government had been reduced from Sh586.5 billion to Sh316 billion, which is consistent with the government's economic programme.
“The MPC observed that revised borrowing requirements should exert downward pressure on domestic interest rates, while the additional external financing will bolster the foreign reserves of the CBK,” added the paper.
The new changes mean that external financing for this year’s budget is now projected at Sh448.7 billion, way above the Sh131.0 billion approved in June.
However, this is a downgrade from the Sh475.8 billion that had been tabled as a revise projection by the National Treasury in August
In the projections, domestic borrowing for the 2023/2024 financial year is now at Sh415.0 billion, down from Sh587.0 billion approved in June.
In FY 2022/23, the allocation to development in the revised budget was 27.9 percent of the total expenditures while the actual expenditures were 25.2 percent.
“This performance was below the set threshold on account of the rationalisation of Government expenditures to reduce the fiscal deficit in line with the Government’s agenda as well as below target disbursements for externally funded projects,” noted the paper.
In FY 2023/24, the allocation for development expenditure is 34.4 percent of ministerial Government expenditure and is projected to remain above the 30 percent threshold over the medium term.