Gloomy financial outlook after government slashes budget

Kenyan universities are set for a tougher year ahead after the government slashed the higher education budget for the next financial year starting in July by US$120 million. The news comes amid an already gloomy financial outlook exacerbated by growing debt in the sector and parliament’s refusal to hike tuition fees.

The institutions will have to make do with US$1.003 billion, down from the US$1.13 billion allocated for the current fiscal period, as the government implemented one of the biggest cost-cutting strategies in the recent past to cushion the economy from the effects of the COVID-19 pandemic.

The universities had requested US$1.76 billion from the government in their budget plans, according to the 2021-22 financial year budget estimates published in mid-February.

“The reduction in the allocations is on account of budget rationalisation,” said Ukur Yatani, Kenya’s treasury secretary, in documents tabled in parliament.

A second blow

The news comes on the back of parliament’s refusal to approve university administrators’ requests to increase tuition fees.

Parliament, instead, asked universities to work with the national government to explore ways of increasing the allocation to the Higher Education Loans Board, the agency that disburses loans on behalf of the government, to support more students.

“Any review of fees should take into consideration the performance of the economy at that time, given the effects of COVID-19 on the economy,” said National Assembly Education Committee Chairperson Florence Mutua.

Last year, vice-chancellors from public universities asked parliament to approve a rise in fees – in some cases, threefold. This would have meant that all state-sponsored students in public institutions would pay US$600 annually in tuition fees, up from the current US$265.

Struggling to stay afloat

The shortfall in funding, university administrators said, will see most of the institutions struggle to remain afloat as the amount allocated in the current year is not adequate to meet their expenditures in light of higher student enrolments.

This is made worse by the fact that the universities have, in the recent past, seen their internally generated funds dwindle on changes in government policy.

Until recently, universities would make up for the shortfall by raising revenue from enrolling self-sponsored students to the erstwhile lucrative parallel degree programmes.

But there has been a sharp decline in the number of self-sponsored students over the past three years since the government lowered the entry requirement for high school leavers to join universities.

This means those who would previously be locked out in the admissions would see education through sponsorships. But today, most of them are now able to join through government sponsorship.

Public spending cuts

The cuts are occasioned by a significant fall in government revenues, largely taxes on the back of reliefs extended to taxpayers to alleviate COVID-19 shocks.

The Kenya Revenue Authority said that revenue for the six months through December fell short of the US$9.1 billion target by US$1.07 billion.

The statistics show how broad tax categories were impacted by the economic fallout emanating from COVID-19 containment measures, with income tax streams being the hardest hit.

This has seen the government institute a reduction in public-sector spending, a turn of events that will hurt universities, leaving them with limited options other than to expand their revenue streams in the coming years.

“With state support to higher education unlikely to improve soon, the institutions had better start thinking of alternative ways of raising funds,” said the Business Daily, a Kenyan newspaper, in an editorial on 16 February, following the budget cuts.

“They should, for example, consider collaborating with the private sector in research, product development and innovation, providing and selling content to the media industry, working with ICT departments to train staff and testing new manufacturing formulae,” the editorial continued.

“Kenyan universities have lagged in research, yet they have experts in many fields . . . The stakes are higher than ever before. If universities are to prosper, they must be relevant to the societies in which they exist.

“That relevance is not only in churning out graduates every year but also creating jobs for them in different sectors of the economy.

“Universities should start operating and competing like other market players; compete for students, compete for research funding and consultancies, compete for faculty staff, compete for sports leagues, and develop innovations that better meet the needs of consumers in Africa,” the newspaper argued.

Defaulting on financial obligations

The US$1.003 billion allocated to the universities will largely go to recurrent expenditure at US$954 million while the balance of US$50 million will be used to fund infrastructure expansion and upgrade.

The higher education sector in the country has been grappling with a series of challenges since the outbreak of the pandemic.

At the institutional level, the institutions were affected by the loss of income which is normally generated through grants from the government, payment of fees by learners and generation of funds through other income-generating activities.

Due to the unhealthy financial position of the institutions, there was the termination of employment of staff and reduction of salaries and wages leading to low motivation and poor well-being.

“The government’s agenda on expansion and equipping of institutions was also affected with the resultant delays in completion of ongoing capital projects at the institutions, since part of the sector budget was re-directed to the health sector to fight the COVID-19 pandemic,” according to the Treasury.

Public universities rely largely on government subsidies to run their operations. The government capitalisation, however, currently covers only 57% of the learners, instead of the target of 80%.

This allocation is applied mainly to pay staff salaries, leaving little or no funding for promoting quality.

Additionally, most of the public universities were not able to pay contractors for ongoing projects, resulting in delayed project implementation, pending bills and potential cost escalation.

In addition to the challenges universities face to support learners adequately with reduced budgets, the institutions have been defaulting on other financial obligations.

Data shows that public universities have statutory debts totalling US$190 million owed to the Kenya Revenue Authority.

This is in addition to outstanding statutory obligations to pension schemes, and workers’ savings and cooperative societies. The University of Nairobi leads, with US$55 million and US$27 million respectively.