Data showed that development project financing as a share of total state spending fell to single digits for the first time in more than a decade, reflecting the impact of rising debt servicing costs.
Official data from the National Treasury shows that government ministries, departments and agencies spent Sh315.06 billion on development projects, excluding the donor portion, against a total expenditure of Sh3.44 trillion for the year ending June 2024.
This is equivalent to 9.15% of total national government spending, the first time it has fallen into single digits in more than a decade based on publicly available data.
Analysis of disbursements from the Treasury, the government’s main account, shows that the share of cash transferred to capital projects has been declining for five consecutive years through June 2024.
Economists say that cutting spending on development projects such as roads, water, power plants, housing and electricity transmission lines leads to a slowdown in economic activity, which negatively affects the creation of new job opportunities and government revenues, especially taxes.
Cement makers, steel manufacturers, contractors, and thousands of workers working on infrastructure pipelines benefit from public spending and often feel the effects of reduced public spending on development.
Development projects have been the main victim of budget cuts, with successive governments seeking to realign spending through supplementary budgets to meet unapproved programmes amid perennial revenue shortfalls.
For example, the development projects budget was cut by Sh122.4 billion after youth-led anti-government demonstrations and protests prompted the Ruto administration to scrap new and higher tax plans for the current financial year.
However, the National Assembly’s Budget and Appropriations Committee said the cuts would affect projects funded by taxpayers while excluding those funded by development partners whose share in the current year’s budget is estimated at just over Sh240 billion.
Budget cuts for projects financed by development partners such as the World Bank Group and the African Development Bank often impact implementation because funders have clauses that largely require their share to be released after the government releases its share.
“The committee noted that the reduction in development spending has been consistent over the past three years. Indeed, development spending as a share of GDP has declined from an annual average of 6.3% between 2010 and 2020 to 3.2% in the revised FY24/25 estimates,” the parliamentary budget team said in a report to the House of Representatives on July 23.
The committee added that “the expected reduction in development spending of Sh122.4 billion targets projects financed through the Treasury. The committee noted that this represents a departure from previous years, where budget consolidation was mainly limited to the postponement of donor-funded development projects.”
This came in a year when debt servicing costs amounted to Sh1.596 trillion, or nearly half (46.39 percent) of total spending compared to a quarter (25.45 percent) or Sh435.72 billion in 2017.
The cost of debt repayment has become the biggest spending of all, highlighting the impact of commercial loans taken out in the past decade to build roads, bridges, power plants and a much-needed modern railway.
Road funding through the Treasury was among the hardest hit.
Treasury data shows that disbursements from the government’s main account for roads projects have fallen by about two-thirds (65.85 per cent) in four years to Sh40.58 billion in the financial year ending June 2024 from Sh118.84 billion in the financial year ending June 2020.
Road and power infrastructure may have taken the lion’s share of the budget under former President Kenyatta’s administration, but this came with a debt burden on taxpayers, largely through loans contracted from China.
This has drawn criticism from Dr Ruto’s top supporters in the run-up to the disputed August 2022 presidential election, with the current Chief Cabinet Secretary, Musalia Mudavadi, reportedly declaring that “Kenyans don’t eat roads.”
In his final address during national celebrations, Kenyatta said his administration had built more than 11,000 kilometres of asphalt roads since taking office in April 2013, claiming the additional network was about six times the number of kilometres built by his three predecessors since independence.
“Opponents said we should not invest heavily in infrastructure because people do not eat roads and floating bridges. I rejected their pessimism because I know what a new road means to a farmer who for decades has been unable to move his produce quickly to market,” Kenyatta said on June 1, 2022.