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Costly projects hurting economic growth rate

SGR Phase 2A of the Nairobi-Malaba stretch at Suswa station on January 9. /FAITH MUTEGI
SGR Phase 2A of the Nairobi-Malaba stretch at Suswa station on January 9. /FAITH MUTEGI

Increased government spending on development projects may stagnate Kenya’s GDP growth moving forward, a report has found.

“It should be noted that development projects especially if funded through debt have to be carefully selected to ensure that the economic returns outweigh the cost,” the Budget Options for 2019/20 and the Medium Term report stated.

Findings by the Parliamentary Budget Office show there have been concerns on the pace at which projects are being implemented in the country coupled with the quality of government investments.

As per the report, many development projects in the country take too long to complete leading to higher costs or abandoning the projects altogether while half done. In addition, some development projects are an end in themselves and unlikely to stimulate economic expansion.

“This is despite sinking billions of shillings into the said projects,” the report stated. Development projects worth Sh350 billion have stalled in various stages due to dragged-out court cases while county projects stall due to poor disbursement of funds by the national Treasury. Some of the major projects that have stalled due to various litigation issues include the Olkaria – Lessos – Kisumu – Transmission line worth Sh18.2 billion, the Mariakani Substation worth Sh3 billion and the Ethiopia – Kenya – Transmission Line worth Sh62.854 billion.

Others are the Mwea Irrigation Development Project at Sh9.4 billion, the Kisumu Water Supply Project at Sh3.66 billion, Lessos – Tororo Transmission line at Sh8.8 billion and the Yatta Dam Water Supply Project at Sh6.5 billion. Although government sliced Kenya’s 2018/19 development budget by 5.1 per cent to Sh677.2 billion last September, some of the projects scheduled for implementation are set to be funded through loans.

This can be evidenced by the number of infrastructure bonds that have been issued by the National Treasury since the fiscal year began, with the latest one being the first tranche of the Sh250 million M- Akiba bond.

The Parliamentary Budget Office, a professional unit which advises legislators on financing, budgetary and economic matters warned poor project identification, feasibility studies and impact assessment before project implementation would negatively impact government deficit and increase debt levels. This will, in turn, maintain the country’s annual GDP rate at 5-6 per cent, which has been the case for the past five years as opposed to growing beyond that.

“Unless there is significant change to scale up productive capacity, it will be difficult for the economy to grow higher than 6 per cent,” the report stated.