NAIROBI, Kenya – In the wake of the contentious Finance Bill 2024’s withdrawal, Kenya’s Treasury faces a formidable challenge in managing the country’s expenditure for the upcoming financial year, set to begin next week.
The bill, which sparked nationwide protests due to perceived over-taxation, was rejected by President William Ruto on Wednesday.
President Ruto announced he would not sign the bill, responding to widespread public discontent.
He sent the bill back to the National Assembly with a directive to remove all its clauses.
This decision leaves a significant gap of Sh302 billion in projected revenues that the Treasury had planned to use to fund the 2024-25 Sh3.9 trillion budget, alongside planned borrowing.
The Kenya Revenue Authority (KRA) had been tasked with raising Sh2.92 trillion in the next financial year, an increase from the current Sh2.57 trillion.
This target is now expected to fall short by at least Sh300 billion, forcing the Treasury to operate on a shoestring budget.
Major spending cuts are anticipated, likely affecting service delivery and halting development projects.
President Ruto has directed further austerity measures, starting with his office and extending throughout the executive branch of government.
“I direct that operational expenditure in the presidency be reduced, including allocations for the confidential vote, travel budget, hospitality, purchase of motor vehicles, renovations, and other expenditures,” he stated.
The President also called on Parliament, the Judiciary, and County Governments to collaborate with the National Treasury in implementing budget cuts to ensure the country lives within its means. This follows an earlier Cabinet decision to cut spending.
The Treasury will have to reassess key allocations across various ministries and state departments to reduce spending below Sh3.9 trillion, possibly aligning with the current financial year’s Sh3.7 trillion budget.
Counties are among the biggest potential casualties, with allocations possibly falling below Sh400 billion.
Critical sectors such as roads, agriculture, social protection, and the Teachers Service Commission are also facing additional budget cuts.
Previously proposed cuts included Sh15.1 billion from roads, Sh6.7 billion from agriculture, Sh5.5 billion from social protection, and Sh18.9 billion from the Teachers Service Commission.
Ministries likely to face budget reductions include education, which currently has the largest allocation of Sh656.6 billion for the 2024-25 budget, energy, ICT and infrastructure with Sh477.2 billion, and national security with Sh377.5 billion.
Employment in government is also expected to be frozen for an extended period to control high recurrent expenditures, which were set to rise from Sh2.53 trillion to Sh2.84 trillion.
Cabinet Secretary Njuguna Ndung’u had projected a fiscal deficit, including grants, of Sh597.0 billion, down from Sh925.0 billion in 2023-24.
This deficit was to be financed by net external borrowing of Sh333.8 billion and net domestic borrowing of Sh263.2 billion.
However, the deficit is expected to increase due to revenue shortfalls, necessitating further borrowing.
Experts anticipate changes with supplementary budgets. “We have seen supplementary budgets which are not very emotive being used to sneak in some expenditures, so it might still go up,” noted Ken Gichinga, Chief Economist at Mentoria Consulting.
The government remains under pressure from the IMF and the World Bank to raise more revenues to meet its budgetary obligations, including debt repayment.
Currently, about 60% of every Sh10 collected as tax goes toward debt repayment, with the national debt standing at Sh10.4 trillion as of March.
