Expenditure on development projects in the first five months of the current fiscal year surpassed the target set by the National Treasury, pointing to increased economic activities which boost job opportunities for the expanding unemployed graduate youth.
A total of Sh203.1 billion was pumped into capital projects in the July-November period, the Treasury says in the draft 2019 Budget Policy Statement (BPS), Sh3.2 billion more than what it had targeted.
The bulk of the cash was, however, issued in October and November after development spending massively fell short of the Sh169.3 billion target in the previous three months by Sh101.2 billion, the Treasury said in the quarterly Economic and Budgetary Review for the first quarter (July-September) last November.
That means about Sh135 billion was disbursed to various development projects in October and November.
Underperformance in the absorption of development funds in the July-October period has largely been blamed on President Uhuru Kenyatta’s directive to State ministries, departments and agencies to finish projects already in progress before initiating new ones.
“The exercise to clean up the development project portfolio triggered by the presidential directive on inclusion of new projects in the budget also slowed down the uptake of development expenditures in the first quarter. This picked up strongly in the second quarter (October-December 2018) of FY 2018/19,” the Treasury says in the draft BPS statement.
Mr Kenyatta last July froze implementation of new projects by ministries and other State organs until ongoing ones are completed.
He directed that any new projects must be cleared by Treasury Secretary Henry Rotich first, adding that officials who defy the order will be held personally responsible.
“There will be no new projects that will be embarked on until you complete those that are ongoing,” the President said on July 20.
“Even if new projects are aligned to the Big Four they cannot be started without express authority from CS or PS of the National Treasury.”
Higher spending on development projects such as roads, water, power plants, real estate and electricity transmission lines stimulates economic activities, helping create job opportunities and grow government revenue, largely taxes.
The Treasury has not broken down expenditure by various ministries and departments in the draft BPS report, which will form the basis for the budget for the year starting July.
Treasury statistics in the monthly Statement of Actual Revenues and Net Exchequer Issues, however, shows the State departments of Transport and Energy posted the highest absorption rate of development funds in the five-month period through November.
The Transport department, charged with implementing projects such as the ongoing second phase of the standard gauge railway (SGR) from Nairobi to Naivasha, had the highest absorption rate at nearly Sh9.4 billion, or 75.2 per cent, of the Sh12.49 billion full-year budget.
The Energy department, which largely provides oversight in the building of power plants and transmission, absorbed 59 per cent, or Sh13.17 billion, of the Sh22.33 billion development cash it has been allocated in the current financial year.
Expenditure by the Department for infrastructure, however, remained the largest by size, with issues amounting to Sh16.37 billion or 22.6 per cent of the Sh72.35 billion estimates for 12 months through June 2019 to oversee such as roads and bridges.
Others with high absorption of development funds were Health (Sh5.42 billion of the Sh28.22 billion), crop development (Sh3.36 billion of the Sh16.76 billion), Interior (Sh3.33 billion of the Sh16.94 billion), Basic Education (Sh2.94 billion of the Sh9.25 billion) and University Education (Sh2.83 billion of the Sh10.31 billion).
Development spend by Department of Water and Sanitation in the five-month period was Sh2.56 billion of the Sh23.58 billion full-year estimates, while that for irrigation and ICT stood at Sh1.24 billion of the Sh5.79 billion and Sh1.01 billion of the Sh10.80 billion projection.
Overall, expenditure on development projects accounted for 24.5 per cent of the Sh829.1 billion spent in the period. That is short of the legal requirement for 30 per cent in three to five years under section 15 of the Public Finance Management Act of 2012.
“The government will continue with fiscal consolidation efforts. Deliberate steps will be undertaken to narrow the budget deficit and stabilise public debt, prioritise development expenditures while protecting social spending and investments,” the Treasury says in the draft BPS.
The government remains the biggest buyer of goods and services from the private sector, and reduced spending on projects hurts momentum in economy which is recovering from a five-year low in 2017.
State spending puts money in private hands through demand for raw materials, which ultimately creates new jobs.
Cement makers, steel manufacturers, contractors and the thousands of workers employed in the infrastructure pipeline benefit from public spending and usually feel the pinch of a drop in public expenditure on development.
Private sector activity, as measured by monthly Stanbic Bank Kenya’s Purchasing Managers Index (PMI), appeared to pick up towards the end of last year, closing at a high last seen in 2014.
The headline PMI Index — the measure of private sector activity such as output, new orders, employment and supplies delivery times — rose marginally to 53.6 in December from 53.1 ia month earlier.
A point above 50 denotes growth in overall business activity compared to the previous month, while a reading below that mark denotes a contraction in activity undertaken by firms.
“The Stanbic PMI closed the year strongly, recording the highest average since 2014. We believe that GDP growth remains on track to test 6.0 per cent year-on-year in 2018 and furthermore the good weather conditions in …(quarter four) will have underpinned the agrarian sector as well,” Stanbic economist for East Africa Jibran Qureishi said in a statement on January 4.
“Moreover, firms scrambled to clear backlogs of stock in December which subsequently boosted output, while surprisingly costs remained steady for firms during the festive season as well.”
Companies further reported increased export orders, indicating that firms experienced an influx of both domestic and overseas demand.
Kenya’s economic activities last year recovered from a five-year low in 2017 spurred by improved weather and a better investment environment following a March 9 truce between President Uhuru Kenyatta and Opposition chief Raila Odinga — popularly known as the Hand Shake.
“Growth momentum will likely be sustained in 2019, as healthy remittance inflows and a tighter labour market drive solid private consumption, while upbeat business confidence fuels a strong expansion in fixed investment,” Researchers at FocusEconomics, a Barcelona-based economic forecast and analysis firm, said on December 14.