Ruto’s double-edged austerity policy casts shadow over troubled economy

Hoteliers, traders of goods such as stationery, consultants and public servants will be the worst hit as the National Treasury begins to implement President William Ruto’s austerity policies.

new plan Reduce Policy It will have a significant impact on various industries such as consulting firms, hotels, airlines and banks.

Finance Minister Njuguna Ndung’u outlined the austerity measures and issued guidelines for budget cuts in 24 areas to plug a Sh346 billion shortfall that emerged after the 2024 Finance Bill was withdrawn following public protests.

Government spending cuts range from 20% to 100% and cover areas such as communications, travel, membership fees, training, reception and various contract services.

Amid a public outcry, President Ruto announced new austerity measures last week, saying: “The number of government advisers will be reduced by 50% with immediate effect.”

“Similarly, confidential budget allocations will be eliminated for various executive offices, including mine, and the renovation budget across government will be reduced by 50 per cent.”

The move is expected to hit consultancies hard as the government has already imposed a 20% discount on contracted professional services. This could result in a drop in the number of projects and contracts for consultancies.

The hotel and airline industries are also likely to be affected, with domestic travel and living expenses expected to fall by 50% and foreign travel and living expenses by 20%. This could lead to a drop in business travel as well as hotel and airline bookings.

Banks will also be affected by the austerity measures following the government’s decision to cancel housing and car loans for civil servants, an important source of income for financial institutions.

Cutting government spending is Ruto governmentThe move is, however, seen as a double-edged sword that could have a ripple effect across sectors, forcing businesses to adapt and find new ways to cope with the changing landscape.

“These austerity measures are a clear demonstration of the government’s commitment to fiscal discipline, but will undoubtedly put pressure on several sectors,” said economist Wanjiku Mwangi.

“Faced with budget cuts, companies need to reevaluate their strategies and find new ways to stay competitive.”

The government has not yet announced a timetable for implementing austerity measures, but analysts and traders expect the impact to be felt in the coming months as spending cuts are phased in across government agencies. Other experts say the government still has room to eliminate waste without affecting key sectors or service delivery, including health and education.

They point out that recently, Kenya’s Kwanza government has been aggressively pursuing austerity policies, but most government agencies have once again become the target of criticism for squandering public funds. The president initially asked senior officials to cut public spending and save money to pursue the government’s development agenda, but the order seems to have fallen on deaf ears as the government continues to spend hundreds of millions of shillings on travel, entertainment and the purchase of new luxury equipment.

A previous spot check Financial Standards Several government agencies that rely on government bailouts continue to ignore President Ruto’s orders to cut non-essential budgets, the investigation showed.

Just as the Kenyan government is asking people to be prepared to bear the consequences of austerity policies.

Kenya’s Kwanza government is facing increasing pressure to reduce the cost of living, with some senior officials and state institutions continuing to spend lavishly in defiance of austerity policies, which is likely to exacerbate social tensions, experts warned recently.

For example, the Privatisation Authority of Kenya (PAK) recently came under scrutiny for spending millions of shillings on a rebranding exercise despite austerity measures imposed by the National Treasury on government departments.

A report detailing contracts awarded between March and December 2024 showed PAK spent Sh9.995 million on consultancy services for the rebranding, which was awarded to M/s Artful Eyes Productions Ltd in March.

The six-month contract expires in September. The continued heavy spending is likely to heighten concerns about whether state agencies can implement the austerity measures advocated by the president.

Critics say that while citizens have been told to accept austerity, there are no clear signs that government officials are cutting costs or finding efficiencies in using taxpayer money to complete various government projects.

The new government plans to further cut spending to achieve its goal of a structurally balanced budget.

The cuts are expected to affect maize and fuel subsidies, making living costs higher for Kenyans, while the Treasury is also planning to expand tax rates, meaning more burdens for taxpayers. The government is facing a major budget crisis as tax revenues fall due to a surge in debt repayments, forcing it to impose new taxes and increase other levies, sparking public anger. Months after taking office, President Ruto ordered austerity measures to reduce the budget deficit for the 2022-23 fiscal year.

The cuts, scheduled to take effect in October 2022, will affect communications, advertising and printing, training, travel, hotels, motor vehicle and furniture purchases, and motor vehicle leasing.

However, most government ministries, agencies, and county governments have ignored this push, especially in terms of domestic and international tourism and office furniture purchases.

The target was to save Sh300 billion but this was not achieved.