Financial experts urge Treasury to cut expenditure to tame wage bill

Financial experts have urged the government to implement expenditure cuts urgently to reduce the ballooning wage bill.

Speaking during the Ernst & Young (EY) annual Pre-Budget Media Briefing, financial experts pointed out that duplicated roles within government, wastage of resources, and inefficiencies are major areas that need to be considered to reduce government expenditure.

Rachel Njuguna, Tax expert and Associate Director at EY noted that the major source of government budget is taxes, borrowing from domestic and foreign sources with the least coming from government fee and levies (appropriations in aids).

Ms Njuguna said that domestic borrowing shrinks economic activities with banking institutions not able to lend to SMES or resort to lending at higher rate. This further pushes the government to the foreign debt market.

In June 2024, President William Ruto appointed an independent task force to carry out a public debt audit.

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According to the National Treasury, public and publicly guaranteed debt stock increased to Sh10.5 trillion as of the end of June 2024 from Sh10.2 trillion as of the end of June 2023. This comprises an external debt stock of Sh5.1 trillion and a domestic debt stock of Sh5.4 trillion.

“As a country, we don’t know how much foreign debt we hold following the appointment of the taskforce,” she said.

The EY economic outlook indicated that While Kenya experienced a more stable macroeconomic environment in 2024 – evidenced by lower inflation and a steadier exchange rate – it's crucial to recognise that significant underlying issues persist.

This comes even as several sectors of the economy continue to navigate significant headwinds curtailing growth and stifling job creation.

The latest economic data indicates that gross non-performing loans (NPLs) in the country's commercial banks increased from KES 576.1 billion in 2023 to KES657.6 billion last year with political tensions, policy rates and inflationary pressures impacting the sector.

EY Associate Director Robert Maina further cautioned that ongoing negotiations with the
Bretton Woods institutions on the country’s external obligations should be approached with caution and in recognition of Kenya’s prevailing economic conditions.