President William Ruto’s administration plans to conduct a special audit into tens of billions of shillings spent in the last days of the previous regime without the approval of lawmakers, the International Monetary Fund (IMF) has revealed.
The scrutiny is part of the commitments Dr Ruto’s administration has made to the IMF under the multilateral lender’s ongoing 38-month budgetary support plan that has unlocked a Sh55.07 billion ($447.39 million) loan.
The Treasury spent Sh23 billion without the approval of Parliament in July and August, which came weeks before the inauguration of President William Ruto.
The unbudgeted spending included Sh810 million to the State House, Sh2.2 billion for building a military research hospital, and Sh4.5 billion for maize flour subsidy.
Another Sh9.45 billion was allocated for road construction and Sh6 billion for the purchase of a 60 per cent stake in Telkom Kenya, turning the operator into a parastatal.
The IMF says Dr Ruto’s administration has committed to conducting a special audit aimed at providing “accountability and transparency for spending undertaken outside the approved budget”.
"A planned special audit on supplementary budgeting—including under Article 223 of the Constitution—to provide accountability and transparency for spending undertaken outside the approved budget (is being conducted)," said the IMF of Kenya's commitments.
The Sh23 billion is part of the Sh54.6 billion the Treasury had committed to withdrawing from the government’s main account without parliamentary approval.
Article 223 of the Constitution allows the Treasury to withdraw money from the Consolidated Fund without the approval of MPs but should seek the lawmakers' nod within two months through a supplementary budget.
The unbudgeted disbursements are, however, capped at 10 per cent of the appropriated expenditures.
The Treasury has over the years come under sharp scrutiny for allegedly abusing the constitutional provision by spending money on unbudgeted projects and coming to parliament for backing.
The Parliamentary Budget Office (PBO), a unit that advises Parliament on financial and budgetary matters, in September asked MPs to come up with a law that would force the Treasury to first approach Parliament and discuss the intention of expenditures before disbursing the money.
“This Article (223) of the Constitution has been abused by the Treasury. What happens now is that the Treasury withdraws money to fund what is not budgeted and comes to Parliament to rubberstamp the expenditure,” Martin Masinde, the acting director of PBO, told lawmakers.
The IMF says the special probe on supplementary budgeting by Auditor-General Nancy Gathungu will also seek to “identify trends and risks in spending authorised under supplementary budgets”.
Kenya has committed to “protect public resources, enhance transparency and accountability to reduce corruption risks” under the IMF’s Sh297.38 billion ($2.416 billion) Extended Fund Facility and Extended Credit Facility agreed upon in April 2021.
The release of Sh55.07 billion on Monday evening means Kenya has received nearly two-thirds of the conditional funds which are wired in phases upon meeting conditions set by the Brettonwood institution.
“Alongside new initiatives to promote inclusive growth, progress on the structural reform agenda should continue. By beginning to publish beneficial ownership information for successful bidders of new procurements, Kenya delivers on a key commitment to enhancing transparency and accountability,” IMF deputy managing director Antoinette Sayeh wrote in the statement following approval of the latest disbursement.
“Planned reviews of the fuel pricing mechanism and the audit of extra-budgetary spending are also important.”
The IMF notice came amid complaints by key allies of Dr Ruto that they inherited a broke government with no cash in the Treasury.
The government overshot its recurrent budget — including salaries, operation and maintenance costs— for the first quarter ended September by Sh57.03 billion to Sh573.29 billion.
The Presidency, which supports offices of the president and his deputy, exceeded the budget by Sh5.02 billion to Sh10.78 billion in the review period, according to the latest Treasury's expenditure disclosures.
Some of the state departments which exceeded their targeted recurrent budgets in the three-month period were Petroleum and Mining by Sh35.01 billion largely because of fuel subsidy, Early Learning and Basic Education (Sh16 billion) and Agriculture (Sh3.56 billion) on flour subsidy.
“The over expenditure in the recurrent category was mainly due to higher than targeted expenditures in operations and maintenance,” the Treasury wrote in the provisional expenditure and budget review report for the first quarter of the current year ending June 2023.
The above-target budget in the first quarter of the fiscal year has put Dr Ruto on the back foot in his plan to slash the full-year recurrent expenditure by at least a quarter in a bid to ease pressure on public borrowing.
The President, who served as a powerful deputy in the previous regime until a fallout in 2019, has directed the Treasury to work with other ministries to reduce the nearly Sh1.18 trillion recurrent budget for this fiscal year by at least Sh300 billion.
The plan, he says, will reduce the need to borrow Sh862.5 billion to plug the hole in the Sh3.3 trillion budget for this financial year ending June 2023.
The savings from what promises to be the deepest and most brutal budget cuts in decades will ease the pressure to borrow “because the market cannot sustain the kind of borrowing we are doing as government”.
“Kenya has met all the quantitative performance criteria under the fourth review and strongly overperformed in several areas including tax revenue, the primary balance of the government, and limits on the contracting of public debt,” the IMF wrote in the statement.
