Major road and housing projects as well as financing for small businesses are facing disruption as the Treasury faces difficulties in disbursing funds due to revenue challenges.
The lack of funding will also leave Kenyans suffering from poor medical, water, electricity and education services, with the Treasury failing to release billions of shillings planned for development, despite raising a raft of taxes last year.
By the end of May – a month to the end of the 2023/24 financial year in June – the Treasury had released only Sh261 billion out of the Sh481 billion allocated for development projects by the national government.
An analysis of the latest Treasury data shows that while the Treasury released just over half of the original development budget for the 2023/24 financial year in 11 months, key departments driving President William Ruto's economic agenda shouldered more than 90 per cent of unfunded development.
The Treasury has not released Sh53 billion out of Sh88 billion originally planned for road construction and repair, the state Department of Medical Services is funded with only Sh15 billion out of Sh40.8 billion and in housing, only Sh5.4 billion out of Sh5.4 billion. Sh28.3 billion was released at the end of May.
The Treasury struggled to keep up with funding demands across national and county governments, with the Kenya Revenue Authority (KRA) facing difficulties in tax collection, ending May with a balance of Sh567 billion. The KRA had by the end of May collected Sh1.9 trillion in taxes, out of the Sh2.49 trillion budgeted for the financial year ending June.
The Sh567 billion shortfall in taxes, which must be collected this month if the KRA is to meet targets, is more than three times the average monthly collection made by the tax official between July 2023 and May 2024, and means the body will have to collect a daily sum. . An average of Sh18.9 billion for each of the 30 days this month.
The Treasury had initially set Sh2.57 trillion as a tax collection target during the current financial year, following a raft of measures that imposed new taxes and fees, including a 1.5 per cent housing tax and doubling the value-added tax on oil. products to 16 percent. However, it lowered the target to Sh2.49 trillion in the wake of KRA's apparent struggles.
The revenue shortfall that has led to cuts in development spending underscores the headache the government faces as it pursues its economic agenda.
“On the domestic front, the Kenyan economy is now beginning to shed layers of negative and persistent shocks that have had a structural impact on economic activities.
“We continue to witness external shocks and the recurrence of extreme weather events that not only impact economic activities, but also pose significant financial risks,” Treasury Minister Njuguna Ndongo said while delivering his 2024/2025 Budget speech last week.
Data released by the Treasury shows that of the Sh219 billion that the state had not released to agencies to implement planned development projects by the end of May, Sh203 billion would have gone to about 13 government ministries.
The revenue shortfall forced the government to review the budget downward from Sh480.8 billion to Sh457.2 billion.
Other departments that were severely affected by the budget gap are the State Ministries of Energy which received Sh8 billion out of Sh25 billion, Economic Planning which missed Sh14.6 billion from its original budget, and Water which missed Sh12.3 billion from its original budget. Its budget is 28 billion shillings.
The Ministry of Foreign Affairs has given small and medium-sized enterprises only Sh1.6 billion out of Sh11 billion to carry out development activities, an indication of the challenges they may have faced in their quest to support more small enterprises in accessing cheap credit.
The Ministry of Foreign Affairs for Investment Promotion was also given Sh1.2 billion out of Sh6.5 billion, despite its crucial role in creating an enabling environment for local and foreign investors to set up businesses and grow the economy.
The Treasury struggled to release funds to agencies even after reviewing them downward in supplemental budgets, leaving projects prepared by the agencies at risk of stalling.
“To boost economic recovery, the government will accelerate the implementation of policies, programmes, projects and interventions in Beta to promote agricultural transformation, support small and medium enterprises, provide affordable housing and settlements, and achieve universal healthcare,” Professor Ndongo said last week. .
Over the eleven months to the end of May, the 13 most affected departments in terms of development financing accounted for 92 percent (Sh203 billion) of the total Sh219.6 billion unfunded development activities.