AVOIDING THE CRUNCH >
The facts about Treasury, counties and the state of Kenya’s finances
The National Treasury has recently published revenue and expenditure information in the National Gazette for the first quarter of 2017/18. What does this publication tell us, and what doesn’t it tell us?
Total revenue for the first quarter is down substantially versus the same period last year: From Ksh460 billion to Ksh408 billion. However, the way this information is presented tends to muddy the waters. The biggest elements of reported revenue really involve three items, only one of which is traditionally thought of as revenue. Tax, which is by far the largest revenue stream, is obviously a revenue source. But the other two elements — borrowing (domestic and commercial) and the balances carried forward from the previous year — are more ambiguous. For example, normally, we think of borrowing as deficit financing to fill gaps between expenditure and revenue, rather than as a revenue stream.
When it comes to cash flow, it is true that all of these streams help to ensure we can make payments. If we look just at tax revenue, which makes up more than half of the total in both 2016/17 and 2017/18, then it has grown by a respectable 10 per cent since last year. Thus, the decline in “revenue” is confined to a smaller opening balance, and less borrowing than last year. The opening balance in 2017/18 was just over half last year’s figure (Ksh60 billion v Ksh31 billion). The same was true for borrowing: Domestic and commercial borrowing was at Ksh94 billion last year; this year, there was no commercial borrowing and domestic borrowing was at Ksh47 billion.
How has this decline in available cash affected spending? Recurrent ministerial spending is up 37 per cent over last year, suggesting that there has been no impact of reduced cash on that side of the budget. The budget for the year is actually only 11 per cent higher than last year, so this performance is quite impressive. We will see below that the true figure is closer to 25 per cent above last year, but that is still robust.
On the other hand, public debt expenditure is down for the first quarter this year compared with last year’s 34 per cent. That is not because public debt payments for this year are lower; in fact, our projected debt payment in 2017/18 is 33 per cent higher. We will have to pay Ksh622 billion in debt this year eventually, but we are paying at a slower rate than when we paid Ksh467 billion last year. The higher recurrent expenditure in the first quarter now raises a question: are we spending money now that we will need to repay debt later?
On the development side of the budget, spending for the first quarter is marginally below last year’s spending: Ksh39 billion this year compared with Ksh42 billion last year. Given a somewhat smaller development budget this year, this means that in both years, we were at about 10 per cent of our annual target at the end of the year. This is seemingly not that worrying, though it is hardly inspiring.
This leaves counties. By this time last year, counties had received Ksh55 billion. This year, they have received… nothing. Well, not quite nothing. They have received none of their statutory disbursements, but they have received Ksh20 billion in “advances” from the National Treasury. This amount is listed under the National Treasury recurrent budget, and is why I said earlier that the true amount of recurrent expenditure is actually 25 per cent more than last year, rather than 37 per cent as it appears. There is no information in the Gazette about the distribution of these advances to different counties, which is a major transparency gap.
According to the National Treasury, it has not disbursed statutory flows because of a discrepancy between the County Allocation of Revenue Act, approved by parliament, and the disbursement schedule to counties, also approved by parliament. Neither of these documents is publicly available, and it is baffling to consider that the last Parliament was capable of the level of
The biggest elements of reported revenue really involve three items, only one of which is tax.” Public debt expenditure is down for the first quarter this year compared with last year’s 34 per cent. That is not because public debt payments for this year are lower
incompetence necessary to create such a situation.
Based on last year’s first quarter returns, and inflated for the increase in county funding this year, Treasury should have sent Ksh59 billion to counties, but sent only Ksh20 billion. This means that there is a balance of roughly Ksh40 billion that is committed but unspent. Treasury reports a balance in the exchequer account of Ksh56 billion, but taking into account this Ksh40 billion committed, there is only Ksh 16 billion remaining.
That is not enough to cover the gap in debt payment that we identified above. Given the challenging political and economic context, our new parliament must be vigilant in overseeing expenditure to avoid a repeat of the 2015 cash crunch. Jason Lakin is head of research for the International Budget Partnership. E-mail: email@example.com
The National Treasury of Kenya.