Treasury to cap spending at 75pc of revenue growth rate

The National Treasury building in Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

The Treasury will now cap expenditure growth at 75 percent of Kenya’s revenue growth rate, as the government plots to improve the exchequer’s chance at fiscal consolidation.

The Planning ministry will also put a limit to projections on revenue growth to avoid having overambitious tax targets that have plagued previous budgets when unmet, leading to wider fiscal deficits.

“Revenue projection will not exceed the average growth in preceding three years and expenditure growth capped at 75 percent of the revenue growth rate,” said the Treasury in its final budget policy statement.

In essence, for every Sh100 in additional revenue, the Treasury will endeavour to keep new spending at no more than Sh75.

The move to tie up spending to revenue growth is expected to complement additional fiscal consolidation measures as the Treasury angles for a fiscal deficit of no more than three percent in the 2026-27 budget.

Read: Treasury plan to deal with Kenya’s debt crisis by 2026

Other initiatives include budget neutrality whereby, for new programmes to be financed, the resources must be released by another programme or project that is either completed or closed.

Further, the Treasury has outlined plans to establish an infrastructure fund, to be initially financed by proceeds from the privatisation to reduce the financing of commercially viable infrastructure projects from the budget over time.

At the same time, grants and concessional loans will be applied primarily to water, health, education, environment and climate change while the exchequer plans to engage a transaction adviser to securitise outstanding bills.

The Treasury is betting on the fiscal policy stance to slow down the annual growth in public debt without compromising service delivery.

On the flip side, the Treasury targets to grow tax revenues beyond 18 percent of gross domestic product (GDP) over the medium term through an array of initiatives including tax administration interventions that cover the integration of the Kenya Revenue Authority tax system with telcos and tax base expansion in the informal sector.

An analysis of fiscal outturns in recent years by the Business Daily shows erratic trends in both expenditures and revenue mobilisation with the Treasury, for instance, failing to hit revenue targets on most occasions.

While the taxman exceeded its revenue collection target in the 2021/22 fiscal year at Sh.2.199 trillion, the preceding two financial years saw it miss the targets by Sh17.4 billion and Sh131.2 billion respectively.

Read: Treasury exceeds spending by Sh 65.5 billion in first quarter

Similarly, while spending has largely stuck beneath the targets, the rate of growth on the expenditures has on occasion exceeded the comparative revenue growth.

For instance, while revenues grew by 1.9 percent in the 2019/20 fiscal year, expenditures rose at a faster rate of 5.4 percent to Sh2.565 trillion.

Expenditures in the 2017/18 fiscal year also grew by 0.1 percent while revenues in the year plunged by 10.39 percent to leave a wider budget hole.

Total spending in the upcoming 2023/24 budget has been estimated at Sh.3.663 trillion while total revenues are projected at Sh2.894 trillion including Sh2.571 trillion from taxes (ordinary revenue).

Recurrent spending is estimated at Sh.2.459 trillion in contrast to Sh769.3 billion allocated for development spending.

Total financing meanwhile stands at Sh720.1 billion and covers Sh521.5 billion in net domestic borrowing and Sh198.6 billion in net foreign financing.

The fiscal balance including grants is expected to close at an equivalent 4.4 percent of GDP in June next year.

Expenditure and net lending which represents the Treasury’s global budget figure is expected to rise over the medium term to hit Sh5.089 trillion from the scheduled Sh3.663 trillion in the financial year 2023/24 while total revenues are projected to cross the Sh4 trillion mark by June 2027.

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