Gov’t to borrow more to finance recurrent expenditure if BBI passes

Gov’t to borrow more to finance recurrent expenditure if BBI passes

Should the Building Bridges Initiative-sponsored constitutional amendments take effect then the Kenyan government will have to effect structural changes to its budget to provide for a more expensive devolved system.

The amendment to devolve at least 35 percent of revenue may push the government into further borrowing to finance recurrent expenditure against public finance law.

Experts are calling for proper planning to ensure economic stability in the coming years.

Members of County Assemblies (MCAs) and County Governors have been upbeat about the promise to devolve at least 35 percent of ordinary revenues. While this may herald major shifts and spur faster growth at county level, BBI proponents have been economical with the impact on public finance management.

Deputy President William Ruto has questioned the possibility of raising the county allocations from current 15 to 35 percent. But the National Treasury says the government has never reneged on its promise.

Despite delays in disbursement of funds to counties, the national government has since 2013 met the constitutional threshold of devolving at least 15 percent of ordinary revenues.

In the current financial year, the government hopes to raise Ksh.1.63 trillion as ordinary revenues. Out of this, Ksh.316.5 billion was allocated as equitable share to counties, representing 19.4 percent.

Should the BBI backed constitutional amendments be enacted into law, out of the Ksh.1.76 trillion projected to be collected in the financial year 2021/2022, up to Ksh.617 billion will have to be devolved, being at least 35 percent. And after charging Ksh.1 trillion against the exchequer as debt repayment, the government may be left with just Ksh.147 billion from the ordinary revenue to finance its programmes.

“Realistically, if we are talking about numbers and the context of the economy today, it is not realistic to have 355. This is ambitious,” says Tony Watima, an Independent Economist.

In the next financial year starting July 2021, the government intends to spend Ksh.685 billion on development projects. Another Ksh.115 billion is marked for consolidated funds services. Yet the national executive requires Ksh.1.2 trillion for recurrent expenditure.

The figures contained in this year’s budget policy statement worth Ksh.3.02 trillion of a budget whose allocation to the counties is set at Ksh.326 billion.

It will strain an economy whose revenue sources have been shrinking due to the impact of COVID-19 effects.

“We are creating a public finance crisis. It is very easy for someone to go to court and say you are using debt to finance recurrent expenditure which will be illegal. The problem is not about transferring 35%, its about where are the government funds,” adds Mr. Watima.

14 functions have been devolved in the Constitution. Yet three crucial functions that should be managed by the counties remain heavily funded and executed at the national level. Could Agriculture, Health and Roads provide a possible avenue of further devolution of services and funds?

For the University of Nairobi’s senior economist Dr. Joy Kiiru, the concern is more on the caliber of MCAs. She says: “If MCAs demanded car grants to pass BBI bill; even if we had the money, can we trust them to oversight 35% of our resources?”

She says that, “Before devolving more funds to the counties, the country needs to fix integrity in the crop of leaders at County executives and Assemblies”

Economists agree that for more funds to hit the county coffers, more resources are needed, with a possibility of higher taxes should the tax net not be expanded proportionately.

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