The Treasury has cut the 2024/25 budget by Sh267.5 billion to reflect the reality of weak revenues amid ballooning public debt.
Total spending and net lending for the financial year starting July 1 is now estimated at Sh3.92 trillion, down from the previous forecast of Sh4.188 trillion.
The lower budget estimates reflect spending cuts across the board.
Daily expenditure by the state or recurrent expenditure, including wages, salaries, interest payments and pensions, is expected to fall by Sh77.6 billion to Sh2.781 trillion from previous estimates of Sh2.859 trillion.
Development spending is again set to take the biggest hit in rationalization plans, with expenditure now estimated at Sh687.9 billion, down from Sh877.8 billion previously.
In its budget summary for the 2024/25 financial year, the Treasury mainly attributed spending cuts to drawdowns caused by weak domestic revenue performance.
“Following the poor revenue performance in the 2023/24 financial year, the revenue projections in the approved 2024 Budget Policy Statement have been revised accordingly to reflect this reality on the baseline. Furthermore, to remain on the fiscal consolidation path, there is a need to contain borrowing and rationalize expenditure to Sustainable levels.
At the same time, the Treasury Department lowered its revenue estimates to reflect the reality of substandard mobilization efforts in recent fiscal years.
For example, the total revenue estimate was revised by Sh81 billion – from Sh3.435 trillion to Sh3.354 trillion.
Regular revenue, which represents tax collection by the Kenya Revenue Authority (KRA), is now expected to fall to Sh2.913 trillion in the financial year to June 2025 from a previous estimate of Sh2.948 trillion.
The combined amounts of ministerial aid appropriations were set at Sh441 billion from Sh486.9 billion.
The Treasury expects total revenues in the current financial year to fall to Sh2.886 trillion from the previous target of Sh3.047 trillion, reflecting poor overall tax performance in the past 12 months.
It is expected that the spending cuts will help the government's plan to adjust financial conditions by reducing borrowing as a means of supporting the budget.
“Fiscal policy seeks to achieve an appropriate balance, addressing rising debt and social discontent while recognizing the difficult trade-offs exerted by Kenya’s limited fiscal space exacerbated by persistent financing constraints,” Treasury added.
The fiscal deficit in 2024/25 is expected to decline by Sh189.2 billion, reducing government borrowing requirements from domestic credit markets and from external sources.
For example, net foreign financing will fall to Sh256.8 billion from Sh326.1 billion, while net domestic financing is now expected to reach Sh257.9 billion from Sh377.3 billion previously. The bulk of external financing is expected to come from the IMF through the bank's ongoing multi-year program, which runs until April 2025, and from the World Bank's Development Policy Financing, a rapid disbursement facility that meets external financing needs. Development needs of countries.
By cutting spending in budget estimates while acknowledging poor revenue performance, the Treasury appears to have responded to the recommendations of Parliament, which warned of the risks of not meeting targets.
The National Assembly Committee on Budget and Appropriations, in its consideration of the 2024 Budget Policy Statement, noted that previous tax increase measures did not have the desired effect of increasing collections by the government.
“The Committee noted with concern that the revenue collection measures contained in the 2023 Budget Policy Statement and the 2023 Finance Act did not achieve revenue growth targets,” the committee said in its report.
The committee approved lower ceilings for spending by the executive, parliament and judiciary to reduce overall spending plans by the Treasury in the new fiscal year.
