Inside President Ruto’s second Sh3.9 trillion budget – Highlights

Treasury Cabinet Secretary Njuguna Ndung’u is tabling his second Budget in Parliament, in a tradition marked in East African Community member states.

According to the EAC Treaty, Finance ministers of the partner states read their budgets simultaneously in the afternoon of the second Thursday of June.

In the Sh3.92 billion Budget for the fiscal year 2024/2025, which begins on July 1 to June 30 next year, President William Ruto’s government says it is seeking to reduce budget deficit to achieve a balanced budget by 2027.

The government increased its borrowing target for the fiscal year starting July to Sh597 billion just hours before the Treasury Cabinet Secretary Njuguna Ndung’u reads his Budget speech.

This was an increase of Sh82.3 billion from a deficit of Sh514.7 billion that Prof Ndung’u had earlier tabled in the National Assembly, an indicator that the tax collection target would equally be reduced downwards. In case the tax collection target is not reduced, the spending target of Sh2.95 trillion would be pushed up.

A budget deficit of Sh514.7 billion was quite ambitious, given that the government borrowing in recent times had tended to trend above Sh700 billion.

Government plans to borrow Sh263.2 billion from the domestic market and Sh333.8 billion from external financing.

E-government procurement pilot is ongoing in 12 selected MDAs and counties. It includes an e-market place for common user items up to December 2024. System to reduce cost of goods between 10 percent and 15 percent.

Restricting growth of public sector wage bill:

“The public sector wage bill continues to rise leaving few resources for development. Public sector wage bill stood at 38.2 percent as a ratio of total revenue in 2021. To contain the wage bill, government introduced a wage freeze in financial years 2021/22 and 2022/23 in addition to streamlining the number of allowances,” Prof Ndung’u told Parliament.

“Further actions planned in relation to containing the wage bill include all MDAs should review and rationalise their staff establishments to ensure affordability, fiscal sustainability with right composition and skillsets.”

“The government will roll out a unified human resource information system for the entire public sector starting from July 1, 2024. The system consolidates human resource and payroll data in public service for access through single warehouse. The system has been linked to the KRA iTax to facilitate filing PAYE returns. This reform will eliminate manual and standalone payroll systems.”

The Central Bank of Kenya to increase minimum core capital for banks from Sh1 billion to Sh10 billion. CBK to advise on timetable of implementation.

Banking asset base has expanded at 0.3 percent to Sh7.4 trillion as at April 2024.

Verification committee has received 94,997 claims worth Sh662.3 billion. Analysis of claims ongoing, and committee expected to complete work by October 2024 for implementation within the fiscal framework.

Privatisation programme to target parastatals whose roles are no longer relevant, require huge budgetary allocations for bailout and those producing goods and services that are more efficiently produced by the private sector.

The Ruto administration to also merge or transfer their functions back to parent ministries parastatals with duplicate and/or overlapping functions.  This is aimed at ensuring optimum use of limited State resources and ensure parastatals are self-sustaining, generate additional revenue to the exchequer and ensure quality service delivery.

Plan to reduce fiscal deficit from 5.7 percent of GDP in the current financial year to 3.3 percent of GDP, largely through increased tax collection.

In order to move towards a more balanced budget and improve efficiency on public spending, the following measures will be taken in Finance Bill 2024:

Curtail spending, foreign travels, restrain trainings to within government institutions, suspension of furniture spending for one year, suspension of public recruitment for a year, suspension of refurbishment of government offices.

Due to the limited fiscal space, government will scale up the use of Public Private Partnerships (PPP) for commercially viable projects. Currently, there are 37 projects at various stages of the PPP project cycle.

“In order to enhance the viability of PPP projects, I’ll soon be proposing amendments to the PFM Act 2012 to speed up the process of financial close as well as ensure that the related fiscal cost and contingent liabilities are within acceptable levels.”

In order to enhance price discovery and boost income for coffee farmers, the CMA has licensed 14 coffee brokers and so far 29 auctions have been conducted under the capital markets coffee exchange regulations, 2020 at the Nairobi Coffee Exchange.

In addition, the authority has approved the direct settlement system which has been operationalized by one of the local commercial banks.

Executive, which comprises ministries, departments and agencies (MDAs), will receive the bulk of the allocation at Sh2.24 trillion.

Parliament, which comprises National Assembly and Senate, will receive a total of Sh43.6 billion.

Judiciary has been allocated the least amount of money at Sh23.6 billion.

The 47 counties will receive Sh400.1 billion as part of the shareable revenue.

Other expenditure items will be what is known as the Consolidated Fund Services (CFS). CFS has been allocated a total of Sh2.06 trillion, taking the total spending in the financial year 2023/24 to Sh3.92 trillion.

“To attain food and nutrition security, I propose an allocation of Sh54.6 billion for various programmes under this sector. This includes Sh10 billion for fertilizer subsidy programme, Sh6.1 billion for the national agricultural value chain project, Sh2.5 billion for the Enable youth programme, Sh2.4 billion for the Enable youth and women in Agriculture, Sh747 million for small-scale irrigation and value addition project, Sh642.5 million for the food security and crop diversification project.

• Hustler Fund – Sh5 billion
• Youth Enterprise Development Fund – Sh200 million
• Centre for Entrepreneurship Project – Sh162.5 million
• Rural Kenya Financial Inclusion Facility – Sh1.9 billion

The government’s commitment to turn the housing challenge into an economic opportunity to create quality jobs will be achieved through allocation:

• Sh92.1 billion for housing urban development and public works
• Sh8.3 billion –Kenyan urban programme
• Sh3 billion – Kenya Mortgage Refinance Company for enhancement of capital and lending
• Sh32.5 billion – Construction of affordable housing units
• Sh15 billion – Construction of social housing units
• Sh14.7 billion – social and physical infrastructure

The Treasury proposes the allocation of Sh127 billion to the health sector, Sh20 billion less allocated in the previous financial year.

• Sh4.1 billion for the primary healthacare under the Universal Health Care. Other funds in the remodelled UHC are Secondary Healthcare fund and Critical and Emergency Fund.
• Sh861.5 million allocated for medical cover of the elderly, orphans and vulnerable Kenyans under the social healthcare plan.
• Sh1.1 billion for cancer management and diagnosis at Kenyatta National Hospital and Kisii Level Five Hospital.

Sh193.4 billion for development of roads:

• Sh86.2 billion to support construction of roads and bridges
• Sh37.7 billion for rehabilitation of roads
• Sh69.5 billion for road maintenance

Sh2.4 billion for infrastructure at Dongo Kundu Special Economic Zone

Sh1 billion for Nairobi BRT

Sh316 million for promotion of e-mobility

Sh25.2 billion to expand the railways and associated infrastructure

Sh239.4 million for development of the Nairobi Railway City.

To facilitate movement of people and goods in inland water Sh200 million for acquisition of ferries for use on Lake Victoria.

The Lake Victoria public ferry has stalled for the longest time. The routes are currently served by privately owned waterbuses.

Sh16.3 billion to fund initiatives in the ICT sector, including Sh1.1 billion for government shared services, Sh704 million for the digital superhighway, Sh2.3 billion for the construction of the Kenya Advanced Institute of Science and Technology (KAIST), Sh2.8 billion for the Kenya digital economy acceleration project and Sh2.8 billion for maintenance and rehabilitation of the last mile county connectivity network.

Others are Sh1.5 billion for the development of horizontal infrastructure Phase I at Konza and Sh5.2 billion for the Konza data centre and smart city facilities.

“Investments in the digital superhighway and creative economy continue to play a critical role in enabling the government achieve the objectives of BETA through increased productivity and competitiveness.”

In the energy sector, Treasury has proposed allocation of Sh27 billion for enhancement and revamp of the national electricity grid; Sh14 billion for projects to tap more energy from the vast geothermal potential along the Rift Valley belt and Sh920 million to the country nuclear power dream.

Following the government’s investment in education, Treasury proposes Sh656.6 billion or 27.6 percent of total expenditure to the education sector.

This includes, Sh358.2 billion to Teachers Service Commission, Sh142.3 billion for basic education, Sh128 billion for higher education and research and Sh30.7 billion for Technical and Vocational Education and Training (Tvets).

It also included Sh9.1 billion free primary education, Sh61.9 billion for free day secondary education, Sh5 billion for exam fee waiver, Sh30.7 billion for junior secondary schools (JSS) capitation.  I have also allocated Sh13.4 billion for conversion of 46,000 JSS interns into permanent and pensionable terms.

“The tax measures proposed in the Finance Bill, 2024 and the said custom measures are expected to generate an additional Sh346.7 billion or 1.9 percent of GDP to the exchequer for the 2024/25 budget.”

Registration of VAT threshold raised to Sh8 million from Sh5 million in recognition of inflation.

Removal of VAT on mosquito repellants and raw materials for the same to encourage local manufacturing of the product.

Custom taxes to generate additional revenue of Sh346.7 billion in 2024/2025, this is 1.9 percent of GDP.

Kenya allowed by EAC finance ministers to continue charging import duty on rice at 35 percent instead of the EAC rate of 75 percent for another one year. This duty remission started in the financial year 2021/22.

Also, wheat will be imported at 10 percent import duty instead of the EAC 35 percent.

Duty remission at the rate of 10 percent on the parts used in the assembly of motor cycles extended for one year across the region.

Iron and steel products to be taxed at 35 percent instead of the EAC’s common rate of 25 percent.

Animal feeds to continue being duty-free.

Imported leather bags to stay at 35 percent instead of the EAC 25 percent.

Kenya granted duty remission on import of assembly items for mobile phones, smartphones and laptops. Parts will now be duty free.

Import duty on prime movers to increase to 25 percent up from the EAC’s common rate of 10 percent, and 35 percent for trailers for one year.

Kenya to apply a higher duty of 35 percent on apparel and clothing industry imports, instead of the EAC common 25 percent.

Prod Ndung’u has proposed to remove excise duty on eggs. This is part of the President Yoweri Museveni-Ruto deal on importation of eggs from Uganda.

“To promote trade across the EAC region, I propose the removal of excise duty on imported eggs, potatoes, and onions originating from EAC Partner States subject to goods meeting the EAC rules of origin,” he said.

Treasury is seeking to make the housing levy a deductible tax, a move aimed at easing the taxation burden on employees.

The proposal, if adopted will reduce the taxable income due from employers, marking a shift from the current arrangement where the housing tax is eating into the payslips of workers.

To provide fair treatment to both residents and non-residents offering excisable services, Treasury proposes to amend the Excise Duty Act to charge excisable services offered in Kenya by non-residents through a digital platform.

Excise duty on fees charged for mobile money transfers (M-Pesa transactions) retained at 15 percent. Finance Bill had proposed increase to 20 percent. Excise on fees for cash transfers in banks to go up from 15 to 20 percent as earlier proposed.

Reporting by Dominic Omondi, Kepha Muiruri, Charles Mwaniki, Linet Owoko, Edna Mwenda, John Mutua, Vincent Owino, Constant Munda, Peter Mburu, Kabui Mwangi, Brian Ambani, James Anyanzwa, Luke Anami and Hellen Githaiga.