The Treasury is now facing a significant challenge in managing the country’s expenditure for the upcoming financial year, following the withdrawal of the contentious Finance Bill 2024. President William Ruto announced on Wednesday that he would not sign the Bill, which had sparked widespread protests due to concerns over excessive taxation.
By rejecting the Bill, President Ruto has left a Sh302 billion gap in the projected revenues that the Treasury had planned to fund the 2024-25 budget, which totals Sh3.9 trillion. The Kenya Revenue Authority (KRA) had a target of Sh2.92 trillion in revenue for the next financial year, up from the current Sh2.57 trillion, but this target is now expected to fall short by at least Sh300 billion.
As a result, the Treasury will have to operate on a significantly reduced budget, which is likely to impact service delivery and stall development projects. President Ruto has directed austerity measures to reduce expenditure, starting with his own office and extending to the entire executive branch of the government. He has called for the reduction of operational expenses, including travel budgets, hospitality, motor vehicle purchases, renovations, and other discretionary spending.
Furthermore, the President has urged Parliament, the Judiciary, and County Governments to undertake similar budget cuts and austerity measures. This directive follows an earlier Cabinet decision to reduce spending. Consequently, the Treasury will need to make substantial cuts to key allocations in various ministries and state departments to ensure spending remains below Sh3.9 trillion, potentially averaging the current financial year’s budget of Sh3.7 trillion.
Counties are expected to be among the hardest hit, with allocations possibly falling below Sh400 billion. Other areas facing budget cuts include roads, agriculture, social protection, and the Teachers Service Commission. Specific ministries likely to see reductions are education, which has the largest allocation of Sh656.6 billion, energy, ICT and infrastructure with a budget of Sh477.2 billion, and national security with an initial allocation of Sh377.5 billion.
Employment in government is also likely to face a freeze to manage high recurrent expenditures, which include salaries, operations, and maintenance costs. The fiscal deficit, initially projected at Sh597.0 billion for the 2024-25 financial year, is expected to increase due to revenue shortfalls and increased borrowing.
The government has been under pressure from the International Monetary Fund (IMF) and the World Bank to raise more revenues to meet budgetary obligations, including debt repayment. The country has been at risk of default, with a significant portion of tax revenue going towards servicing debt. As of March, Kenya’s debt stood at Sh10.4 trillion.
Experts anticipate that supplementary budgets might be used to introduce additional expenditures, potentially increasing the overall budget. Ken Gichinga, Chief Economist at Mentoria Consulting, noted that supplementary budgets have previously been used to incorporate expenditures without much public outcry.