Njuguna Ndung’u’s race to collect Sh1.3trn in two months
Tuesday May 16 2023
The National Treasury is under pressure to mobilise nearly Sh1.3 trillion in just two months if it is to meet spending targets for the financial year running to June 30, as the latest data gives a peek into the cash crisis facing President William Ruto’s administration.
The fiscal constraints, which have been mirrored by missed targets in tax collections and borrowing, could see the exchequer rush into last-minute budget cuts or be forced to push some expenditures into the new 2023-24 financial year.
The latest data from the Treasury statement of actual revenues and net exchequer issues as of April 28, published last week shows cumulative revenues in 10 months stood at Sh2.325 trillion against a target of Sh3.612 trillion by June.
This means that the exchequer has to mobilise some Sh1.286 trillion to close the gap within this month and in June.
The exchequer, for instance, faces the pressure of raising Sh535.1 billion in tax revenues in just 61 days, Sh479.9 billion from domestic borrowing, including provisions for debt rollovers and Sh256.15 billion from external loans and grants.
Tax revenues are widely expected to fall shy of the mark based on historical trends where the Kenya Revenue Authority (KRA) is yet to mobilise at least Sh200 billion in any given month.
Expected financing, which includes an estimated Sh136.9 billion ($1 billion) from the World Bank and inflows from the fifth review of the International Monetary Fund (IMF) Extended Credit Facility and the Extended Fund Facility is, however, expected to cushion flows from external financing and grants.
Read: Ruto tweaks Uhuru budget, grows recurrent by Sh87.6bn
Analysts say the government now stares at wide misses on fiscal targets without further recourse in the form of further budget rationalisation and spending cuts.
“The government finds itself in a complex situation as to how it raises and spends funds in the last two months. I think this is asking too much and tees up the odds of a wide miss on fiscal targets,” Churchill Ogutu, an economist at IC Asset Managers, told the Business Daily.
The National Treasury is obligated to make disbursements of Sh1.295 trillion across the two months with the largest spending representing repayments on public debt at Sh484.3 billion.
Scheduled disbursements to recurrent spending meanwhile stand at Sh360.16 billion, Sh213.75 billion for development spending and Sh123.95 billion in disbursements to counties under the equitable share of resources.
The exchequer faced similar pressures last year off the backdrop of missed revenue targets, mostly from borrowing, which forced the Finance ministry to push part of expenditures that had not been disbursed into the current financial year.
The Treasury, for instance, carried over expenditures of Sh88.66 billion into the current 2022/23 financial year while the government faced additional spending pressures of Sh190 billion from expenditures emerging between July and mid-September including spending on fuel, maize and fertiliser.
The State spent Sh61 billion under approvals granted through Article 223 (spending authorised by the National Treasury but without the nod of Parliament) of which Sh26.1 billion was spent on subsidies on fuel, maize, and fertiliser through September 2022.
A further Sh129.59 billion represented other spending needs and included Sh63.37 billion in add-ons to fuel maize and fertiliser subsidies.
“Due to the tight liquidity conditions in late FY2021/22, we have to honour Sh89 billion of expenditures that were authorised in the previous fiscal year but undisbursed. Besides the carryover from FY2021/22 we found ourselves confronted with additional spending pressures for Sh190 billion stemming from expenditures emerging between July and mid-September 2022,” the Treasury had told the IMF in a letter to managing director Kristalina Georgieva on December 7.
A secondary budget rationalisation process, which would result in a second supplementary budget in the current fiscal year has been deemed the low-hanging fruit in preventing further fiscal slippage.
“Realistically, we should see a follow-up contractionary supplementary budget introduced next month, once the National Assembly comes back from recess. I think that’s the path of least resistance compared to a worse fiscal outturn from the current look of things,” added Mr Ogutu.
The cash crisis explains the growing mountain of pending bills that shot up by Sh56.2 billion to Sh537.2 billion in the quarter that ended March 2023, according to the third quarter economic and budget review report covering the nine months to March 2023.
This is a surge from the Sh481 billion in December 2022.
State corporations continue to hold on to the largest share of the unpaid bills at Sh450.2 billion or a respective 85 percent of the arrears while ministries and State departments hold the remainder of unpaid bills
The pending bills by the parastatals cover payments to contractors, projects, suppliers, pension arrears and unremitted statutory deductions.
Most of the State corporations’ pending bills belong to contractors/projects and suppliers while ministries, State departments and other government pending bills comprise largely of historical pending bills.
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The resurgence of pending bills is despite the government’s policy on the clearance of the balances.
The Treasury had directed all ministries, departments and agencies to prioritise the payment of the pending bills as a first charge in the current 2022/23 financial year.