This year’s budget was the last that Mwai Kibaki would preside over. The significance of the moment was not lost on Finance Minister Robinson Githae as he read the government budget last week, introducing his presentation with key growth highlights that the country has achieved since 2002. The finance minister paid tribute to the “bold economic policies and structural reforms that have significantly improved the welfare of Kenyans,” but even Githae was unable to capture just how much Kenya’s economy has changed over the past decade — for better and for worse.

In 2002, Kenya was struggling to keep its head above water — GDP growth was less than one per cent, the country’s revenue authority only managed to collect Ksh34 billion ($400 million) in income tax from individuals; taxes from VAT were languishing at Ksh56 billion ($650 million). The government was spending Ksh321 billion ($3.7 billion) on its recurrent expenditure, mostly to pay salaries of civil servants, while development expenditure — money to build new roads, schools and hospitals — amounted to less than a quarter of recurrent expenditure, at Ksh56 billion ($650 million).

By last year, the outlook had dramatically changed. GDP growth in 2011 was 4.4 per cent, projected to improve to 5.2 per cent this year, and predicted to hit 6.4 per cent in 2013, if Kenya navigates safely through the upcoming general election and the subsequent transition in government. Income tax collection has more than quadrupled over the past 10 years to Ksh160 billion ($1.8 billion) last year, and VAT collection has similarly increased nearly fivefold to Ksh205 billion ($2 billion) in 2011. The government spent Ksh787 billion ($9 billion) on recurrent expenses, double from 10 years ago, and Ksh377 billion ($4.4 billion) on development expenditure last year — nearly seven times as much as in 2002.

This government’s key priority areas have been education, health and infrastructure. Free primary education was Kibaki’s election promise in 2002, and he kept it — about 150,000 children who had been locked out of school returned in January 2003, and the government was spending a fifth of its budget on education to keep up with demand.

This year, the government will spend about 16 per cent of its budget on education. Infrastructure, which has been seen as Kibaki’s “legacy project,” has steadily received an increase in allocation, from 4.9 per cent of the 2003 budget to 8.7 per cent this year for roads, and 1.8 per cent in 2003 to 5.7 per cent this year for energy.

By all measures, the Kibaki administration has been marked by a surge in public spending — the government budget in 2002 presented by then finance minister Chris Obure totalled just Ksh 328 billion ($3.8 billion); this year, the budget is more than four times bigger at a staggering Ksh1.4 trillion ($17 billion). How is the government financing it, seeing that the GDP has not quadrupled over the same time period?

The answer is borrowing. Borrowing from foreign financiers has doubled, while domestic borrowing has more than tripled. Kenya is spending way more than it earns, meaning the economy is on very shaky ground — the gap between exports and imports, also known as the current account deficit, has been increasing steadily over the past 10 years to hit Ksh804 billion ($9.4 billion) in 2011: Exports amounted to only Ksh511 billion ($6 billion) while imports amounted to Ksh1.3 trillion ($15.3 billion). If this was translated to an ordinary household, it’s like earning a monthly salary of Ksh30,000 ($350) but racking up expenses of Ksh75,000 ($880) every month.

The World Bank’s latest economic update warned that Kenya cannot afford to keep widening the trade deficit. Last year, a perfect storm of external shocks — a severe drought, a spike in global food and fuel prices, and the Euro crisis — came together to drive the Kenyan shilling into a severe depreciation, and if the deficit continues, it is not inconceivable that Kenyans could be struggling with skyrocketing inflation and a plummeting shilling again.

But a serious underlying problem that the government will have to address in the coming financial year is the absorption capacity of ministries. A new report from the Office of the Controller of Budget indicates that the absorption rate of the development budget has been low for most ministries, departments and agencies, leaving billions of shillings lying idle in the Treasury. The Budget Implementation Review Report showed that state agencies had spent only one third of development funds allocated to them by the end of March, against a target of 75 per cent.

“In my opinion, we are not spending enough,” said Mugo Kibati, CEO of Vision 2030. “It is critical that ministries spend their development budget because it is through development projects that the country will grow.”

The report showed that uptake of funds has been slow and challenging due to problems with the procurement processes, governance and accountability issues.

“What we have done in the past is focus on making sure the procurement process is fair and free from corruption, but the result is that the numerous procedures hamper implementation of projects. Take urban roads, for example — repairing a simple pothole can take months to get through the procurement processes,” said Mr Kibati.