Businesses & Financial News

Treasury to cutback State spending starting July

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By Steve Umidha

The Kenyan government Tuesday announced plans to cut its state spending in the financial year starting in July to 23.6 per cent of gross domestic product (GDP) from 26.0 per cent in the current fiscal year.

In a budget policy statement the Treasury CS Ukur Yatani, said the belt-tightening measures will help the government meet its target to reduce the fiscal deficit for the period to 4.9 per cent of GDP, down from 6.3 per cent GDP for this fiscal year.

“Revenues as a share of GDP are projected to remain at 18.4% in the medium term,” said Yatani.

This is the second time since such measures were announced by the same institution in September last year in which Kenya took the first step towards cutting excessive government spending and reducing a gaping fiscal deficit that had driven up borrowing, even though analysts believe the cuts do not go far enough.

The cuts to the budget for this fiscal year were mainly caused by revenue collection shortfalls, the ministry said in its budget review, citing a 123.5 billion shillings gap in the government’s financial year to the end of June.

The Treasury said today that it plans to borrow Sh222.9 billion from local banks to plug the budget gap and tap another 345.1 billion shillings from foreign sources in a move seen to reduced heavy borrowing that has been witnessed the current regime that took office in 2013 and having been forced to raise its borrowing ceiling last year after breaching initial targets.

Kenya’s fiscal deficit, which peaked at 9.1% of GDP in the 2016/17 financial year, has been exacerbated by higher spending on infrastructure projects including a new railway financed by China.

Fiscal gaps have been accompanied by the consistent failure of the Kenya Revenue Authority (KRA) to meet the government’s lofty revenue collection targets.

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