The National Treasury failed to disburse Sh153.6 billion to cover various payments, including transfers to counties and pensions, exposing the cash crunch arising from the depressed revenue performance.
The unmet expenditure requests have resulted in financial challenges for retirees yet to access their pensions, while counties have struggled to meet key spending including the payment of staff salaries.
The outstanding exchequer requests as of August 31, 2024 included Sh63.6 billion in delayed transfers to county governments, Sh33.5 billion in recurrent budgets and Sh26 billion in unpaid pensions-gratuities.
The undisbursed resources mirror the extended cash crunch at the exchequer which has been primarily driven by the persistent underperformance of tax revenues.
The exchequer missed its revenue target for the fiscal year ended in June 2024, while the subsequent withdrawal of the 2024 Finance Bill has opened a new funding hole in the budget.
“Budget execution for the 2023/24 financial year was hampered by challenges in raising resources. Total revenue was below target by Sh204.9 billion in June 2024,” the National Treasury says in its latest review of macro-economic developments.
“Revenue mobilisation and financing challenges affected our ability to execute the 2023/24 budget in a timely manner leading to cash flow challenges and associated build-up in unpaid bills.”
The National Treasury ended the fiscal year to June with Sh218.5 billion in outstanding exchequer requests but cleared most of the undisbursed amounts in July to leave a balance of Sh38.7 billion before the arrears crept up again in August.
The implementation of the Finance Act, 2023 recorded a performance rate of 77.1 percent as revenues realised fell short of the mark by Sh53.3 billion on the underperformance of miscellaneous fees and levies, collections from the housing levy, income tax and excise duty. The Act had been expected to mobilise Sh232.5 billion in new cash flows for the government but only yielded Sh179.1 billion.
Revenue projections in the 2024/25 financial year have been derailed by the rejection of 2024 Finance Bill following deadly street protests, denying the exchequer an estimated Sh344.3 billion from new tax measures.
Government has fallen back on spending cuts to plug the revenue hole including reducing the recurrent budget by Sh35.7 billion, which covers a 100 percent cut in spending for the refurbishment of buildings, purchase of vehicles and furniture and the grant of housing and car loans to public servants.
The 1st supplementary budget estimates for the 2024/25 financial year have nevertheless ring-fenced key development budget items including a Sh3 billion allocation to the Hustler Fund, Sh10 billion for the fertiliser subsidy programme and Sh68.2 billion for the National Government Constituency Development Fund (NG-CDF).
Up to Sh68.1 billion of carryover expenditures from the 2023/24 fiscal year have been factored in the supplementary budget including Sh23.8 billion to pension and gratuities, Sh30.8 billion in transfer to counties and 13.5 billion for the NG-CDF.
The balance of Sh150.4 billion in carryover spending is to form a first charge in spending by various ministries and State departments. Overall revenues to June next year are estimated at Sh3.06 trillion including Sh2.63 trillion from taxes while expenditures is set at Sh3.88 trillion.
The budget hole or fiscal deficit has expanded to Sh768.6 billion or 4.3 percent of GDP from an initial estimate of Sh597 billion signaling increased borrowing by the government to fund the national budget.
The Treasury is betting on reforms including the implementation of the national tax policy, the medium-term revenue strategy and a focus on non-tax measures to improve revenue mobilisation over the medium term.
“The implementation of the revenue and expenditure measures will continue to reduce the fiscal deficit from 5.6 percent of GDP in the 2023/24 fiscal year to three percent. The reduction in fiscal deficit will enhance primary surplus, thereby stabilizing public debt over the medium term,” the National Treasury added.
Other measures targeted for higher revenue mobilisation include enhanced compliance through scaling up of use of technology to seal leakages, State owned enterprises reforms to generate savings and the use of public-private-partnerships to take out commercially viable projects from the exchequer.
