Despite his earlier directive to the Treasury to cut Kenya’s total spending for the current financial year by Sh346 billion, President William Ruto on Sunday claimed that the country’s borrowing will increase by Sh1 trillion after the withdrawal of the Finance Bill 2024.
“We have dropped the Finance Bill. What does that mean? It means we have gone back almost two years. It means we will borrow Sh1 trillion this year to be able to run our government,” Dr Ruto said.
Interestingly, even after saying that borrowing would increase, from the initial target of Sh597 billion to Sh1 trillion, the president still claimed that the rejected Finance Bill would have dire consequences on some of the expenditure the government had earmarked.
“This means we cannot confirm the appointment of 46,000 secondary school teachers; this means we cannot support farmers with Sh2 billion to ensure farmers get a fair return of Sh50 per kilogram of milk; this means we cannot settle coffee debts; this means we cannot support cherries,” the president said.
The head of state said other victims of the government’s decision to freeze the $1 billion amid widespread protests were sugarcane farmers in Mumias. He added that Kenya would continue to import potatoes, angering local producers.
In addition, President Ruto in the same interview agreed to push for the abolition of the controversial positions of the First Lady as well as the offices of the spouses of Deputy President Rigati Gachagwa and Prime Minister Musalia Mudavadi.
But with the conflicting statements, the president has only added to the confusion over the budget for the fiscal year that begins this month.
The budget is a balancing act. The expenditure and revenue sides must be balanced. On the expenditure side, there is the expenditure of the national government (the executive, parliament and judiciary) and the 47 provinces. On the revenue side, there are taxes, non-tax revenues, grants and loans.
If the president increases the borrowing target to Sh1 trillion, the country’s total spending will remain at Sh3.997 trillion. Increasing borrowing by Sh403 billion to Sh1 trillion means an increase of Sh57 billion in the budget size.
But on June 28, when President Ruto signed into law the Appropriations Bill, which he said would “ensure continuity of government operations, especially in the provision of essential services,” he had a different perspective. He did not talk about increased government borrowing, but rather about spending cuts, including by his office.
“I have therefore approved the 2024 Appropriation Bill and directed the National Treasury to immediately prepare supplementary estimates to reduce expenditure by the amount of revenue that the rejected Finance Bill was expected to generate,” Ruto said in a statement.
“The spending cut, which amounts to Sh346 billion, will be borne equitably by both levels of government: the national government and the county governments. As far as the national government is concerned, the cut will be borne by the executive, the legislature, the judiciary and our constitutional committees,” the head of state added.
In his speech, while rejecting the Finance Bill last Wednesday, President Ruto called for spending cuts to cover the expected revenue shortfall, including allocations to the executive.
Dr Ruto, whose administration has been under pressure over lavish spending since the start of anti-tax protests, has issued directives to implement austerity measures that would involve spending cuts at all levels of government.
“I direct that the operational expenses of the presidency be reduced by eliminating the secret voting allocation, reducing the budget for travel, hospitality, vehicle purchases, renovations, and other expenses,” he said.
The 2024 Finance Bill, which was withdrawn after widespread protests that left dozens dead, aimed to raise an additional Sh346 billion through various tax measures including a 2.5 percent tax on motor vehicles, an increase in excise duty on airtime and mobile money transfer fees.
Other tax measures in the condemned finance bill included a value-added tax on bread, and increased excise duty on alcohol, cigarettes and gambling. A new environmental tax was also set to be applied to imported finished goods deemed harmful to the environment.
In total, the government was expected to collect Sh2.913 trillion in taxes in the current financial year ending July next year to fund the Sh3.997 trillion budget. Non-tax revenues — fees and charges from government agencies — were expected to raise Sh426 billion. The Sh597 billion budget gap was to be bridged using loans from local and foreign lenders.