President William Ruto has resolved to borrow Ksh169 billion instead of implementing the proposed Ksh346 billion increase as outlined in the contentious Finance Bill 2024.
In a national address on Friday, July 7, President Ruto stressed that this move will aid the government's strategy to mitigate financial strain while maintaining essential services.
Ruto also disclosed that the government will institute a committee tasked with conducting a thorough forensic audit of the country’s debt. This committee, yet to be appointed, is expected to deliver its findings within three months.
"This audit will provide the people of Kenya with clarity on the extent and nature of the debt, how public resources were expended and will recommend proposals for managing our public debt in a manner that is sustainable and with intergenerational equity," asserted Ruto.
Initially, the National Treasury weighed the options of either fully borrowing Ksh346 billion or implementing across-the-board budget cuts equivalent to the entire amount. Ultimately, a decision was reached to slash the budget by Ksh177 billion and borrow the remaining balance.
"In our assessment, completely eliminating this amount would severely impact critical government services, while borrowing it in full would widen our fiscal deficit, potentially destabilising sectors such as exchange and interest rates," remarked President Ruto.
The proposed reduction in the budget and the subsequent borrowing are set to elevate the fiscal deficit from an intended 3.3 per cent of the GDP to 4.6 per cent, albeit still lower than the previous year, according to Ruto's statement to the nation.
Funds raised from this borrowing initiative will be allocated to several key projects previously slated for cancellation.
This money will be directed towards Kenya Kwanza projects including, the recruitment of Junior Secondary School teachers and medical interns, funding for the milk stabilisation program benefiting dairy farmers, and the revival of stalled road projects nationwide.
Additionally, the government plans to retain the fertilizer subsidy program, settle debts owed to farmers in the coffee subsector, capitalize the Coffee Cherry Fund, and facilitate public sector-owned sugar mills in clearing outstanding debts owed to sugarcane farmers. Other allocations encompass additional funding for the new higher education funding model, settling arrears owed to counties, the NG-CDF, and pensions.
President Ruto's decision comes amidst heated debates over fiscal responsibility and economic sustainability, with critics questioning the long-term implications of increased borrowing against budget cuts.
The forthcoming parliamentary deliberations will gauge public sentiment and legislative support for the proposed budget adjustments.
