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September 20, 2018

Projected budget deficit of 9.3% is worrying

The budget estimates for the coming fiscal year from July released recently by the Treasury shows proposed budget will be Sh200 billion more than the 2015-16 one of Sh2.26 trillion. Revenue collection is expected to increase from Sh1.18 billion to Sh1.37 billion. Of total expenditures, Sh850 billion have been allocated to recurrent expenditures, and Sh809 billion to development spending. The largest allocations go to Transport (Sh358 billion), Education (Sh144.9 billion), Interior (Sh120 billion), and Defence (Sh100 billion).

When looking at Kenya’s budgets, it’s always useful to bear in mind what’s on paper doesn’t necessarily have to happen. Often, the plan looks, by and large, sensible. But then you know a large chunk of this money is not exactly spent sensibly – allocations to security disappear to private bank accounts via AngloLeasing-type contracts. Allocations that should be an investment in Kenya’s unemployed youth similarly disappear via dodgy NYS procurement. And so on. There are estimates that around 30 per cent of public spending in Kenya are wasted this way.

Of course the budget estimates will not tell you how much money went to safari last year. We do know, however, the government also has a challenge of actually spending money budgeted for development projects. This is referred to as absorptive capacity. GOK is often behind on implementing planned projects. Saves some money, you might think. But it really means a lot of important and urgent projects – say, investments in healthcare, or new roads – don’t get done.

What struck me in the reporting on the budget estimates was that the Treasury of course knows this – but there appears to be very little effort to tackle this problem. In fact, the quotes from the Cabinet secretary generally seemed to betray a troublingly casual attitude towards these issues:

For one, in the coming fiscal year, the budget deficit is projected to reach 9.3 per cent of GDP. This is enormous, and worrying. Even the projected fiscal deficit of 8.7 per cent in the current fiscal year had been enormous. In the end, it turned out it will probably be slightly lower, 7.9 per cent. The budget policy statement acknowledges the challenges in budget implementation and said ‘going by historical absorption uptake’, the deficit would likely be 6.9 per cent. But how does this reflect on the quality of fiscal planning, and the government’s ability to execute its plans?

If you just casually juggle with a good two percentage points of your budget deficit? In an election year, you can expect the quality of spending to be even worse than usual. And I have not yet found a convincing explanation how revenue collection will be raised by Sh200 billion when KRA did not meet the current fiscal year’s targets. I don’t think this is quite the solution: “A reputable consulting firm has been engaged to deep-dive into the authority’s business processes and systems to propose realistic adjustments intended to reverse the shortfalls.” (and not just because I distrust people who use ‘deep dive’ on principle).




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