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Kenya budget aims at key issues, execution doubtful

By on June 11, 2010

Kenya’s finance minister presented a budget for 2010/11 that addressed key development issues but questions linger over the government’s ability to absorb and utilise the funds.

Although the government planned to spend 321.23 billion shillings on development projects, the highest amount the government has ever set aside for expansion, it was still only about a third of the total 996.82 billion budget.

“The problem is implementation,” Chrysanthus Okemo, a former finance minister, told Reuters.

“If the development budget is implemented … so the money that has been planned is spent and not like the stimulant budget (2009/2010) where we spent only 57 percent, then we can see some growth.”

Kenyans often complain that bureaucracy and lack of capacity means ministries do not execute projects but Finance Minister Uhuru Kenyatta told parliament ministries would now be required to use up at least 90 percent of there money allocated to them.

“Kenyatta presented a very thoughtful and yet ambitious budget with spending targeted at all sort of projects across the country. The fact is that a lot of the projects listed simply never took off, either for lack of funds, or for lack of planning,” the Daily Nation said in its editorial.

“Too much government spending still goes to paying salaries rather than towards roads, schools, bridges and hospitals, cheaper electricity and pipe water. That will not change unless there is radical downsizing of a bloated bureaucracy.”

Recurrent expenditure on government overheads such as salaries will receive 675.89 billion shillings but Prime Minister Raila Odinga said the government was moving towards a 40:60 ratio for development spending versus recurrent expenses.

Razia Khan, head of Africa research at Standard Chartered, said that while Kenya had well-contained debt-to-GDP ratio of 40 percent, there is global concern about sovereign debt and reigning fiscal deficits and its decision to make further fiscal expansion was worrying.

“Still, as a mitigating factor, at least domestic borrowing will fall short of last year’s levels,” she said.

Treasury plans to reduce domestic borrowing to 105.3 billion shillings to help bridge a 188 billion deficit, which is 6.8 percent of GDP. It will also call on foreign financing of 82.7 billion shillings.

In past budgets Kenya has factored in minimal donor funds as donors, concerned about corruption in government, tightened purse strings. This time around, Kenyatta said he would lean on external concessional funds.

“We’ve seen a lot of investment interest from the East … obviously the geopolitics is such that people need to remain relevant so perhaps they will engage more,” Kuria Muchiru, country senior partner PWC.

“But let’s be fair, a lot of the macro-economic stability that has been reported to be a success is also encouraging the donors to say, this seems to be working.”


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