Institute of Public Finance Shadow Budget: Kenya’s 2024 budget prioritises debt service amidst fiscal constraints.

  • 9 May 2024
  • 3 Mins Read
  • 〜 by Anne Ndungu

The KSh 4.1 trillion budget under the Kenya Kwanza administration marks the second fiscal plan in the current regime. The 2024 Budget Policy Statement (BPS) outlines a 4 percent increase from the previous budget, with a heightened allocation prioritising debt service in FY 2024/25.

In response, the Institute of Public Finance (IPF) has conducted an in-depth analysis focusing on “Budgeting in an era of fiscal consolidation.” This analysis has culminated in the production of the 2024 Annual National Shadow Budget, which evaluates spending priorities, budget execution, and key performance indicators.

The macro-fiscal outlook provides critical insights into the economic landscape amidst projected global economic slowdowns and internal fiscal constraints. Heightened debt servicing expenses, coupled with external risks from geopolitical tensions, pose significant challenges. Additionally, concerns regarding unemployment, health sector financing, and poverty reduction measures underscore the complexity of fiscal management. Despite these challenges, the National Treasury projects a 5.5 percent economic growth in 2024, supported by an agricultural rebound and the Bottom-Up Economic Transformation Agenda (BETA) government policy.

Sector allocations reveal nuanced priorities amidst fiscal constraints. Some sectors face cuts due to competing needs and debt servicing burdens. Notably, allocations to sectors like General Economic Commercial Affairs (GECA) and Agriculture, Rural, and Urban Development (ARUD) face significant reductions, raising concerns about fiscal consolidation and social spending prioritisation.

Cross-cutting issues further complicate fiscal management, including the clearance of pending bills and the prevalence of overlaps and duplications in government functions. Addressing these inefficiencies requires strategic planning and coordination to optimise resource utilisation and enhance accountability.

In the Health sector, despite an overall increase in funding, concerns persist regarding the distribution of resources, especially in addressing key health challenges such as HIV/AIDS and maternal health. The Education sector continues to receive substantial funding, but issues of quality and inclusivity remain unresolved, necessitating a reevaluation of budget priorities to ensure equitable access to education for all.

Infrastructure development, particularly in the transport sector, is poised for growth, with significant investments in road and railway projects. However, challenges persist in project implementation and maintenance, calling for improved efficiency and accountability in budget utilisation. Agriculture, a cornerstone of Kenya’s economy, faces budgetary fluctuations, with both gains and losses across various programs, emphasising the need for consistent support and strategic investment in the sector’s long-term sustainability.

In the Energy sector, renewable energy sources are gaining prominence, reflecting the government’s commitment to sustainability and environmental conservation. However, challenges remain in achieving universal access to electricity and ensuring affordability for all citizens. 

The Manufacturing sector is poised for growth, driven by government initiatives to promote industrialisation and value addition. Yet, concerns linger regarding policy coherence and support for small-scale enterprises to foster inclusive growth.

The Information and Communication Technology (ICT) sector demonstrates steady growth, with investments in digital infrastructure and innovation hubs aimed at driving economic diversification and enhancing digital literacy. However, disparities in internet access and digital literacy rates persist, underscoring the need for targeted interventions to bridge the digital divide. In the Financial Services sector, efforts to promote financial inclusion and stability are evident, but regulatory reforms are necessary to address emerging risks and enhance consumer protection.

The Social Protection, Culture, and Recreation (SPCR) sector play vital roles in Kenya’s socio-economic development, including youth empowerment, gender equity, and cultural advancement. While overall sector funding remains stable, shifts in allocations raise concerns about alignment with sector priorities. Persistent issues include discrepancies in budget increments, absorption rates, and the absence of clear KPIs for some funded activities, highlighting the need for transparent and accountable budgeting processes.

Across sectors, recommendations emphasise the importance of aligning budget allocations with national development objectives, improving program performance monitoring through clear KPIs, and enhancing transparency and accountability in resource utilisation. Addressing these challenges requires a holistic approach, integrating fiscal policies, regulatory reforms, and strategic investments to foster sustainable and inclusive development in Kenya.

In summary, while the Kenyan government’s budget reflects a mix of stability and strategic shifts in resource allocation across sectors, persistent challenges remain in ensuring equitable access to essential services, promoting sustainable economic growth, and fostering social inclusion. Addressing these challenges requires concerted efforts to enhance transparency, accountability, and efficiency in budget management while also prioritising investments that deliver maximum impact and value for all citizens.