Kenyans miss development on low budget absorption - report

Kenyans are missing out on development due to low budget absorption both at the national and county government levels, official data indicates, amid poor Public Finance Management.

This adds to concerns that the country loses about a third of its annual budget to corruption, despite year-on-year increases in spending plans, with recurrent expenditure, which includes salaries, operations and maintenance, taking the lion share of the budgets.

The country’s budgets for the past five years have been Sh2.89 trillion in 2020-21 (recurrent Sh1.82 trillion), Sh3.03 trillion in 2021-22 (recurrent Sh2 trillion) Sh3.3 trillion in 2022-23 (recurrent 2.2 trillion) and Sh3.7 trillion in 2023-24 (recurrent Sh2.53).

The 2024-25 spending had been projected at Sh3.99 trillion with recurrent expenditure at Sh2.84 trillion.

However, the government’s push for more revenues through the Finance Bill 2024 has been met with protests, forcing Treasury back to the drawing board after President William Ruto directed for budget cuts.

Development expenditures including foreign financed projects, allocation to Contingencies Fund and conditional transfers to County governments over the past five years have averaged between Sh633 billion and Sh707 billion.

Equitable share allocation to the counties was Sh370 billion in 2022-23, Sh385 billion in 2023-24, while the 2024-25 budget had proposed an allocation of Sh444.5 billion. 

Latest data by the Office of the Controller of Budget (Budget Implementation Review Report) for the first six months of the 2023-24 financial year for instance, puts the absorption rate of development funds by Ministries, Departments and Agencies at 25.2 per cent.

Ministerial allocations for the financial year ended yesterday was initially Sh2.37 trillion, revised to Sh2.64 trillion through the Supplementary Budget, comprising Sh783.22 billion for development activities and Sh1.68 trillion for recurrent programmes.

“In the first six months, the ministerial expenditure was Sh950,33 billion (absorption rate of 36.6 per cent), consisting of Sh197.41 billion for development activities, representing 25.2 per cent, and Sh752.92 billion for recurrent activities, representing 44.8 per cent,” Controller of Budget Margaret Nyakang’o says in the report.

The low absorption of development budget is said to be denying taxpayers key government services and development, including infrastructure, with billions of unspent monies being returned to the exchequer annually.

Gaps 

This has been blamed on lengthy procurement procedures, stringent donor conditionality and weak reporting. 

“Both levels of government are more disciplined at the allocation stage compared to actual budget implementation,” the International Budget Partnership Kenya (IBP Kenya), now Bajeti Hub, indicates.

While the budget conditions in the Public Finance Management (PFM) Act and its regulations for the Kenyan system are spread across national and county levels, existing gaps have seen continued poor utilisation of funds and low development spending, even as employees continue to draw billions in salaries and allowances.

This includes inflating salaries of top government officials.

Counties are spending as high as 70 percent of budgets on salaries, according to Controller of Budget , which is against requirement to spend no more than 35 per cent.

Last year, CoB also flagged about Sh5.7 billion expenditures on salary payments outside approved payroll systems in nine months to March 2023.

This was followed by a report by Auditor General Nancy Gathungu, that indicated government ministries, departments, and agencies spent Sh147.39 billion without approval by Parliament in the 2022-23 financial year.

Majority of the spending, official data shows, has been going to recurrent expenditure with development funds failing to go into projects as planned, both at national and county level.

In March this year, CoB noted that although counties withdrew more than 60 per cent of the authorised funds, the absorption remains a challenge to many.

Machakos County was ranked lowest in absorption despite money being available for use, with Makueni, Kisumu, Homa Bay, Kwale and Kakamega also being at the low end, denying their population the much-needed development projects.

Meanwhile, it is estimated that a third of the country’s budget is lost to corruption, according to the Ethics and Anticorruption Commission, with former President Uhuru Kenyatta indicating an estimated Sh2 billion is lost daily.

Going by the EACC estimates, it means the country would have lost at least Sh1.3 trillion in the current financial year, pegged on the Sh3.9 trillion budget presented by Treasury CS Njuguna Ndung’u last month.

This is despite continued borrowing to bridge the budget deficit, which has left the country deep in debt, which stood at Sh10.4 trillion as of March, with the government forced to seek Public-Private Partnerships to implement key development projects.

"The CoB recommends the need to reduce deficit budget financing through fiscal consolidation to curb further growth in public debt," Nyakang’o recently told MPs.

Debt accumulation and repayment has also been blamed for leaving little to be spent in development.

This year, the government went to the market, and cleared the entirety of the principal for Eurobond and a bit of SGR.

This saw the shilling gain against the US Dollar, easing the external debt stock by a significant amount, about Sh1 trillion according to the CBK. 

Bajeti Hub country manager, Abraham Rugo, however noted that the crisis will not be resolved quickly, especially given the situation where the country was spending about Sh73 out of every Sh100 revenue to repay debt.

“When debt alone is taking about 73 per cent, it means you still have to figure out the problem. All other services that you are supposed to offer cannot be provided with Sh27,” he explained.

Accountability 

In April this year, President William Ruto directed all State agencies with non-compliant reports from the Auditor-General and the Public Service Commission to submit corrective action within 21 days.

Raising concern over the level of non-compliance with constitutional mandates uncovered by the two institutions in their annual audits, President Ruto disclosed that only 24 per cent of government institutions had received a clean bill of health.

He said the trend is unacceptable and amounts to impunity that can no longer be tolerated, even as he holds on that his government is keen on fighting corruption.

“We cannot deliver for Kenyans when we are burdened with impunity and wounded by non-compliance,” he said.

President Ruto said he expects radical improvement in future audits by all government ministries, departments and agencies.

Meanwhile, the government has been put to task by the public on ensuring accountability.