Budget Reading: Inside President Ruto’s Sh3.9 trillion Budget - Key Highlights


Overview

Treasury Cabinet Secretary Njuguna Ndung’u presented Kenya's Sh3.92 trillion budget for the fiscal year 2024/2025 to Parliament. This budget aims to reduce the deficit and achieve a balanced budget by 2027. The budget's release aligns with the East African Community's tradition of member states reading their budgets simultaneously.


Increased Borrowing

The government increased its borrowing target to Sh597 billion for the upcoming fiscal year, up from the previously planned Sh514.7 billion. This increase may lead to a reduction in tax collection targets or an increase in spending to Sh2.95 trillion. The borrowing will include Sh263.2 billion from the domestic market and Sh333.8 billion from external financing.


Public Procurement Reforms

A pilot e-government procurement system is ongoing in 12 selected ministries, departments, agencies (MDAs), and counties, aiming to reduce the cost of goods by 10-15% by December 2024.


Wage Bill Management

Efforts to restrict the growth of the public sector wage bill include:

- Staff rationalization in all MDAs and county governments.

- Implementation of a unified human resource system linked to the Kenya Revenue Authority’s iTax system from July 2024.

- Continued streamlining of allowances by the Salaries and Remuneration Commission.


Financial Sector Reforms

The Central Bank of Kenya will increase the minimum core capital for banks from Sh1 billion to Sh10 billion. The banking sector’s asset base has expanded slightly to Sh7.4 trillion as of April 2024.


Pending Bills

A verification committee has received 94,997 claims worth Sh662.3 billion, with analysis ongoing. The committee is expected to complete its work by October 2024 for implementation within the fiscal framework.


State-owned Corporations Reforms

The government plans to privatize parastatals with irrelevant roles or those requiring significant budgetary bailouts. Functions of some parastatals with overlapping roles will be merged or transferred back to parent ministries.


Reducing Fiscal Deficit

The fiscal deficit is set to be reduced from 5.7% of GDP to 3.3% by increasing tax collection and curtailing public spending.


Public Spending Efficiency

To improve efficiency, the government will:

- Curtail spending and foreign travels.

- Restrict training to government institutions.

- Suspend furniture spending and public recruitment for one year.

- Suspend refurbishment of government offices.


Public-Private Partnerships (PPP)

The government will scale up the use of PPPs for commercially viable projects. Currently, 37 projects are at various stages of the PPP project cycle.


Sector-Specific Allocations

- Agriculture and Food Security: Sh54.6 billion allocated, including Sh10 billion for a fertilizer subsidy program.

- Micro, Small, and Medium Enterprises: Sh5 billion for the Hustler Fund.

- Housing: Sh92.1 billion for housing, urban development, and public works.

- Health: Sh127 billion allocated, including Sh4.1 billion for primary healthcare under Universal Health Coverage.

- Transport: Sh193.4 billion for roads, Sh25.2 billion for rail, and Sh200 million for ferries.

- ICT: Sh16.3 billion for initiatives including the digital superhighway and the Konza smart city project.

- Energy: Sh27 billion for enhancing the national electricity grid.

- Education: Sh656.6 billion allocated, with significant funds for Teachers Service Commission, basic education, and higher education.


Taxation Measures

The proposed tax measures are expected to generate an additional Sh346.7 billion or 1.9% of GDP. Key changes include:

- Raising the VAT registration threshold from Sh5 million to Sh8 million.

- Removing VAT on mosquito repellants.

- Various customs duty adjustments to encourage local manufacturing and trade within the EAC.


Housing Levy

The housing levy will become a deductible tax, reducing the taxable income for employees.


Excise Duty Adjustments

Excise duty on mobile money transfers will remain at 15%, while fees for bank cash transfers will increase from 15% to 20%.


This budget reflects the Ruto administration's commitment to fiscal responsibility, economic growth, and social welfare improvements across various sectors. The implementation of these measures will be critical in achieving the projected fiscal targets and overall economic stability.



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