The government has admitted that the fiscal consolidation initiatives have failed to bear fruits in the current financial year despite some key cost cutting measures.
The National Treasury principal secretary Chris Kiptoo told MPs that the budget deficit rose to Sh908.6 billion from the Sh886 billion in the 2023-24 financial year.
This is an increase of Sh22.6 billion despite a stop on all government projects and ‘tea’ in all public offices in line with proposals on fiscal consolidations from the International Monetary fund (IMF). This is a rise from 5.5 percent of GDP to 5.6.
Following the change, the government has had to revise its borrowing plan for both the local and the international market.
Kiptoo said the government would do a net foreign financing of Sh315 billion and net domestic financing of Sh592 billion to equal the Sh908.6 billion.
This will be an increase from the Sh474 billion that the stat set out to borrow in the Supplementary Budget One.
“Unfortunately we got a lot of pressure, like drought and floods and the budget deficit has increased. So we have not succeeded this year in undertaking fiscal consolidation," he said.
In order to steer back to the consolidations, the National Treasury said it has agreed with the IMF that it will clear the entire budget that has been earmarked for this year.
“We are trying as much as possible not to cross the year with unpaid bills otherwise we would have done like last year where we were cutting everything and closing the system,” Kiptoo told the Finance and National Planning committee.
Next year the government says it plans to reduce the budget deficit to 3.1 percent of the GDP.
The projected increase in local borrowing will likely reflect what happened early in the year where excessive borrowing by the government in the local market deterred investors from Treasury Bills resulting in soaring prices
Treasury Bonds on the other hand remained undervalued, causing an inverted yield curve. This is when the interest rate on long-term bonds is lower than the interest rate on short-term bonds and is often seen as a bad sign for the economy.
In an effort to alleviate the strain on Kenya's borrowing, the government had earlier announced plans to significantly reduce its borrowing, both domestically and internationally.
This move was aimed at facilitating easier access to loans for Kenyans, potentially reversing the recent decline in loans extended to private households by commercial banks, Saccos, and microfinance banks.
Last year, Kenya experienced a rare downturn in banking sector loans to households, dropping by Sh13.7 billion in December. This was attributed to the high interest rates resulting from policy rate hikes by the Central Bank of Kenya (CBK).
The pronouncement coming on the back of fresh cost cutting measures that includes the suspension and termination of procurement of non-priority items.
Last month accounting officers have been directed to suspend and immediately cease the procurement, printing and production of corporate wear, including but not limited to T-shirts, shirts, tracksuits, and any other branded clothing items.
Controller of Budget Margaret Nyakang’o revealed in her report in February that spending on printing and advertising by ministries shot up by Sh25 million in the last six months while vehicle maintenance went up by Sh51 million.
