Key roads and housing projects as well as funding for small businesses face disruption as the Treasury struggles with disbursements due to revenue challenges.
The funding shortfalls will also leave Kenyans enduring poor medical, water, electricity, and education services, with the Treasury failing to release billions of shillings planned for development, despite increasing a raft of taxes last year.
By the end of May – a month to the close of the 2023/24 fiscal year in June – the Treasury had released just Sh261 billion of the Sh481 billion earmarked for development projects by the national government.
An analysis of the latest Treasury data shows that while the exchequer released just above half of the original development budget for the 2023/24 fiscal year during the 11 months, key departments driving President William Ruto’s economic agenda bore over 90 percent of the unfunded development.
Treasury did not release Sh53 billion out of the Sh88 billion originally planned for road construction and repairs, the state department for medical services was funded only Sh15 billion out of the Sh40.8 billion and in housing, just Sh5.4 billion out of the of Sh28.3 billion had been released at end of May.
Treasury has struggled to keep up with funding requirements across national and county governments, as the Kenya Revenue Authority (KRA) faced difficulties collecting taxes, closing May with a balance of Sh567 billion. KRA had by the end of May collected Sh1.9 trillion in taxes, out of the budgeted Sh2.49 trillion for the fiscal year ending this June.
The shortfall of Sh567 billion in taxes, which should be collected this month if the KRA is to hit targets, is three times more than the average monthly collections the taxman had between July 2023 and May 2024 and means the Authority would have to collect a daily average of Sh18.9 billion each of the 30 days this month.
Treasury had initially set Sh2.57 trillion as the tax collection target during the current fiscal year, following a raft of measures that introduced new taxes and levies, including the 1.5 percent housing levy and the doubling of value-added tax (VAT) on petroleum products to 16 percent. It, however, reduced the target to Sh2.49 trillion in the wake of apparent KRA struggles.
The revenue shortfall that has led to cuts in development spending underlines the government’s headache in its pursuit of fulfilling its economic agenda.
“On the domestic front, the Kenyan economy is now unwinding from layers of negative and persistent shocks that had a structural effect on economic activities.
“We continue to witness external shocks and recurrence of extreme weather events that not only affect economic activities but also pose major fiscal risk,” Treasury Cabinet Secretary Njuguna Ndung’u stated while delivering the 2024/25 Budget speech last week.
The data from the Treasury shows that out of the Sh219 billion that the State did not release to agencies to implement planned development projects by the end of May, Sh203 billion would have gone to some 13 state departments.
Revenue shortfalls forced the government to revise the budget downwards from Sh480.8 billion to Sh457.2 billion.
Other departments that were heavily impacted by the budget hole are the state departments for energy which received Sh8 billion out of the Sh25 billion, economic planning which missed Sh14.6 billion of its original budget, and water which had not received Sh12.3 billion of its Sh28 billion budget.
The State Department for Micro, Small and Medium Enterprises (MSMEs) was only given Sh1.6 billion of Sh11 billion to undertake development activities, a pointer to challenges it may have faced in its drive to support more small enterprises access cheap credit.
The State Department for investment promotion was also given Sh1.2 billion out of Sh6.5 billion, despite its critical role in creating a conducive environment for local and foreign investors to set up businesses and grow the economy.
Treasury struggled to release funds to the agencies even after revising them downwards in supplementary budgets, leaving projects the agencies had lined up at risk of stalling.
“To strengthen economic recovery, the government will accelerate the implementation of policies, programmes, projects, and interventions in BETA to enhance agricultural transformation, support MSMEs, provide affordable housing and settlement, and achieve universal healthcare,” Prof Ndung’u said last week.
For the 11 months to the end of May, the 13 worst affected state departments in terms of development funding took 92 percent (Sh203 billion) of the heat of the entire Sh219.6 billion unfunded development activities.
