Economy
19 mega projects hit as Sh66.8bn China, foreign loans cut
Friday February 10 2023
Cabinet Secretary, National Treasury & Economic Planning Njuguna Ndung’u at Kenyatta International Convention Centre. FILE PHOTO | DENNIS ONSONGO | NMG
At least 19 major projects have taken a hit from tweaks in government spending after foreign lenders cut funding for the year ending June by at least Sh66.8 billion.
Roads and energy infrastructure projects are the most affected by the funding cutbacks by global financiers such as the World Bank and the African Development Bank (AfDB), forcing President William Ruto’s government to shelve or delay their construction.
The Kamburu-Embu-Thika Transmission Line, for example, has been docked Sh4.5 billion — one of the largest cuts — from Chinese lender, the China Exim Bank.
The construction of the 1,045 km 500 kV High Voltage Direct Current (HVDC) transmission line that seeks to connect Kenya and Ethiopia grids, known as the Eastern Electricity Highway Project (Ethiopia-Kenya Interconnector), has lost Sh3.15 billion from the AfDB.
The World Bank funding for a project that seeks to increase power access through cutting construction charges has shrunk by Sh2.9 billion while the Gilgil-Thika Konza 400 KV Transmission Line lost Sh2.3 billion.
Kenya has been relying on foreign loans to upgrade existing power lines and increase the supply and quality of electricity to meet a surge in demand by an expanding population and drive economic growth.
Like other countries in sub-Saharan Africa, Kenya is battling to keep its lights on and suffers from a lack of adequate power supply and an ageing and unreliable network.
Foreign lenders also slashed Sh2 billion meant for Ol Karia geothermal power plants.
Read: State bursts recurrent budget forecast by Sh81.7bn
The Treasury has tweaked its spending and budget deficit estimates for the current fiscal year that ends in June to show a slight increase in overall expenditure but a narrower deficit.
Supplementary budget documents submitted to Parliament showed overall spending was projected at Sh3.37 trillion from the Sh3.36 trillion contained in the original budget presented in April last year.
President Ruto’s administration is trying to curb the deficit after public debt rose sharply under his predecessor, Uhuru Kenyatta, who oversaw an infrastructure construction drive.
The Treasury cut spending on development projects by Sh106.3 billion and increased recurrent spending in various offices, including the State House.
It’s not clear if the slash in funding was triggered by the foreign lenders or if it followed the Treasury’s review of the national budget.
The Loiyangalani-Marsabit Transmission Line has suffered a Sh1.9 billion funding cut while that for the dualling of the 41.7 km of the Mombasa–Mariakani Highway has dropped by Sh1.6 billion.
Private sector players are wary of the austerity measures being implemented by the new administration, fearing that the spending cuts will hurt their economic prospects in the next 12 months.
Respondents in the Market Perceptions Survey conducted by the Central Bank of Kenya (CBK) ahead of every Monetary Policy Committee (MPC) meeting on January 30 noted that the expenditure cuts being undertaken by the government would disrupt the prospects in the economy.
The CBK conducts the survey to obtain perceptions of banks and non-bank private sector firms on selected economic indicators.
The respondents cited the planned fiscal consolidation — policies aimed at reducing government deficits and debt accumulation — by the Treasury as one of the risks to optimism this year.
“The risks to this optimism as the respondents indicated is the fiscal consolidation and indeed the issue of the agricultural sector which I think most of us now are much more susceptible to,” said CBK governor Patrick Njoroge in his MPC briefing.
The road transport budget was trimmed by Sh47.29 billion while the budget for power generation, transmission and distribution fell by Sh40.56 billion as the Ruto administration moved to tighten government purses.
Read: Ruto fails to cut spending in first supplementary budget
In total, direct borrowing from foreign creditors, including bilateral lenders, is expected to drop to Sh224.16 billion from Sh290.9 billion following changes done through a new mini-budget.
The new administration has sought to stop a lot of stalled projects that were started by its predecessor.
In the latest supplementary budget, the allocation for the bus rapid transit (BRT) has been slashed by Sh1 billion, an indicator that the transport system is not a priority for the Ruto government.
