Treasury Cabinet Secretary Henry Rotich has a word with World Bank Country Director Diarietou Gaye at a past function. The WB says Kenya is spending too much debt on recurrent budget. [File, Standard]
The World Bank (WB) has fired a warning shot at the Government for using debt to settle recurrent expenditure.
In a new report on the state of the Kenyan economy, the global lender says it has noted with concern that Kenya is borrowing more than it is spending on development projects, meaning that the money is being used on wages and for purchasing goods and services.
“Overall borrowing in 2015/16 outstripped development spending by 0.1 percentage points, suggesting a small part of the borrowing financed part of the recurrent spending,” said the bank in its latest edition of Kenya Economic Update.
Last year, the National Treasury planned to borrow Sh700 billion while the development budget was estimated at Sh682 billion. WB says this is an indication that the Government is going against a legal requirement that debt be used solely for financing investments.
“This is a departure from the fiscal responsibility principles set out in the Public Finance Management Act (PFM Act),” said WB.
The scathing verdict comes just days after President Uhuru Kenyatta assured Kenyans that the Sh4 trillion debt is not going into consumption, dismissing critics who have questioned his administration’s high appetite for debt.
He said the Government has been borrowing to invest in rail, roads, water and health, areas that would have a positive impact on the country by spurring development.
“I do not think we should be concerned as a country. Yes, we are not going to run away from the fact that we are borrowing. But the question is, are we borrowing for investment or for consumption?” said the President. “The money is not going towards payment of salaries or consumption but to projects that will spur economic growth and create employment.”
By December, low absorption of funds showed that ministries, departments and agencies were incapable of spending money on development projects, thus less resources were invested to spur economic growth.
“The total expenditure and net lending for the period under review amounted to Sh928.5 billion against a target of Sh1.1 billion, with the shortfall of Sh182.4 billion attributed to lower absorption recorded in both recurrent and development expenditure,” said the National Assembly’s Budget and Appropriation Committee in a report on the supplementary budget.
Treasury Cabinet Secretary Henry Rotich cut development spending by Sh213.6 billion because ministries were unable to use the funds.