New budget cut by 267 billion shillings due to falling revenues

The National Treasury has cut the 2024/25 budget by Sh267.5 billion to reflect the reality of poor revenue.

The Treasury estimates total spending and net borrowing will be 3.92 trillion shillings for the financial year starting July 1, up from a previous projection of 4.188 trillion shillings.

The lower budget estimates reflect spending cuts across the board, including reduced spending on salaries and wages and development projects.

The State’s recurrent expenditure, including salaries and wages, interest payments and pensions, is expected to fall by Sh77.6 billion to Sh2.781 trillion, from a previous estimate of Sh2.859 trillion.

Once again, development spending will bear the brunt in the rationalization plans: expenditure is now estimated at Sh687.9 billion from Sh877.8 billion.

The Treasury has mainly attributed the spending cuts to the gap created by poor domestic revenue performance.

“Following the poor performance of revenues in the 2023/24 financial year, the projected revenues in the approved Budget Policy Statement (BPS) for 2024 have been revised accordingly to reflect this reality in the baseline. Furthermore, to stay on the path of fiscal consolidation, it is necessary to contain debt and rationalize spending to sustainable levels,” the Treasury said.

At the same time, Treasury has revised its revenue estimates downward to reflect the reality of below-par mobilization efforts in recent fiscal years. The total revenue estimate has been reduced by Sh81 billion, from Sh3.435 trillion to Sh3.354 trillion.

Ordinary revenue, which represents the Kenya Revenue Authority’s tax collection, is now forecast to fall to Sh2.913 trillion in the new financial year ending June 2025, from a previous estimate of Sh2.948 trillion.

Collections from ministerial relief allocations have also dropped from Sh486.9 billion to Sh441 billion.

The Treasury expects total revenue in the current financial year to be lower than Sh2.886 trillion from a previous target of Sh3.047 trillion, reflecting overall poor tax performance over the past 12 months.

The Treasury hopes the spending cuts will firmly establish the government’s fiscal consolidation plan by reducing borrowing as a means of budget support.

“Fiscal policy strives to strike the right balance, addressing rising debt and social unrest, while recognizing the difficult trade-offs imposed by Kenya’s limited fiscal space, which has been exacerbated by continued financial constraints” , stated the Treasury.

The 2024/25 fiscal deficit is expected to fall by Sh189.2 billion, which will reduce the government’s borrowing needs from both domestic credit markets and external sources.

Net external financing will fall to Sh256.8 billion from Sh326.1 billion, while net domestic financing is now projected at Sh257.9 billion from Sh377.3 billion previously.

Most of the external financing is expected to come from the International Monetary Fund (IMF) through the ongoing multi-year program that will run until April 2025, and from the World Bank’s development policy financing, a rapid disbursement mechanism that satisfies the development needs of the countries. .

By cutting spending estimates after acknowledging poor revenue performance, the treasury is apparently heeding recommendations from Parliament, which had warned of the risks arising from missing targets.

In considering BPS 2024, the Budget and Appropriations Committee warned that previous tax increase measures had not had the desired effect of increasing government revenue.

“The committee noted with concern that the revenue collection measures contained in the 2023 Budget Policy Statement and the 2023 Finance Act have not achieved revenue growth objectives,” the committee stated in its report.

The committee approved lower limits on Executive, Legislative and Judicial spending to force reductions in overall spending plans in the new financial year.