New Budget Slashed By Sh267bn On Revenue Dip

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

The exchequer estimates total expenditure and net lending to be Sh3.92 trillion for the financial year starting July 1, down from a previous projection of Sh4.188 trillion.

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

The States recurrent expenditure, including on wages and salaries, and interest payments and pension is expected to fall by Sh77.6 billion to Sh2.781 trillion from an earlier Sh2.859 trillion estimate.

Development spending is once again set to take the largest hit in the rationalisation plans, with the expenditures now estimated at Sh687.9 billion from Sh877.8 billion.

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

Following the underperformance of revenues in the financial year 2023/24, the projected revenues in the approved 2024 Budget Policy Statement (BPS) have been revised accordingly to reflect this reality on the baseline. Further, to remain on the fiscal consolidation path, there is a need to contain borrowing and rationalise expenditures to sustainable levels, Treasury said.

At the same time, the exchequer has revised down its revenue estimates to reflect the reality of below par mobilisation efforts in recent fiscal years. The estimate for total revenue has been dialled down by Sh81 billion from Sh3.435 trillion to Sh3.354 trillion.

Ordinary revenue, which represents tax collections by the Kenya Revenue Authority is now projected to fall to Sh2.913 trillion in the new financial year to end in June 2025 from an earlier estimate of Sh2.948 trillion.

Collections from ministerial appropriations-in-aid have also been cut down to Sh441 billion from Sh486.9 billion.

Treasury expects total revenue in the current financial year to be lower at Sh2.886 trillion from an earlier target of Sh3.047 trillion, reflecting the general underperformance of taxes in the past 12 months.

The exchequer expects the spending cuts to firmly set down the governments fiscal consolidation plan by reducing borrowing as a means of budget support.

The fiscal policy endeavours to strike an appropriate balance, addressing rising debt and social discontent while recognising the difficult trade-offs exerted by Kenyas limited fiscal space that has been exacerbated by continued financing constraints, Treasury stated.

The 2024/25 fiscal deficit is expected to fall by Sh189.2 billion, reducing the government borrowing requirements from both the domestic credit markets and external sources.

Net foreign 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.

The bulk of external financing is expected to be sourced from the International Monetary Fund (IMF) through the ongoing multi-year programme that runs to April 2025, and from the World Bank development policy financing, a rapid disbursement facility that meets countries development needs.

By cutting spending estimates after acknowledging revenue underperformance, the exchequer is seemingly heeding recommendations by Parliament, which had warned of risks arising from missed targets.

In its consideration of the 2024 BPS, the Budget and Appropriations Committee warned that previous tax raising measures had not had the desired effect of increasing collections by the government.

The committee noted with concern that the revenue-raising measures contained in the 2023 Budget Policy Statement and the 2023 Finance Act have not achieved the revenue growth targets, stated the committee in its report.

The committee approved lower ceilings for spending by the Executive, Legislature and Judiciary to force down the overall spending plans in the new financial year.