Recurrent expenditure - definition, types and examples

Recurrent expenditure - definition, types and examples

Most people are not aware of what is involved in recurrent expenditure. It entails how a government or an individual spend their funds and other resources. Majorly, it is aimed at development. You need to know what it is and how best to keep it in check.

What are examples of recurrent expenditure?

Source: UGC

Recurrent expenditure refers to a type of spending that does not result in acquiring fixed assets in a country or business. They are all the regular payments and expenses used to maintain and run a county. It also refers to all fees, exclusive of capital forms of payment.

What are examples of recurrent expenditure?

Examples of recurrent expenditure include:

  • Salaries and wages.
  • Employee allowances.
  • Operational costs like water bills, electricity, accommodation, traveling, telephone, cost of maintaining equipment, and installation.
  • Funds used in covering costs of compulsory obligations.
  • Debts
  • Price of remunerations
  • Subsidies transfers among other services inclusive of payments on goods and services.
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Impacts of recurrent expenditure on economic growth

Repetitive expenditure is required for economic growth. However, recurrent spending has had some negative impacts on the economy in the past years. These include:

Increased debts burden

The government has borrowed lots of funds over the last few years. This is an attempt to raise more money to meet the requirements of government expenditure and the development of different sectors such as health, education, transport, among other development plans. All these have led to the accumulation of debts, which will take years to repay.

Increase in taxes

In order to collect more revenues, taxation rates have increased, thus increasing the taxation burden on citizens.

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Poor economic development

The rapid increase of recurrent expenditure budget has led the allocation of funds with most money meant for infrastructural development being re-directed to recurrent spending, thus contributing to under-development

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Low private investment rates

With increased taxes, most of the Kenyan citizens involved in businesses and private investors are discouraged from opening up private corporations and business for fear of being overtaxed and incurring losses.

Poor living standards

Recurrent expenditure is among the factors leading to the poor standard of living in Kenya. Moreover, most of the funds are going into the expenditure budget and leaving very less income, which could help in the creation of more employment opportunities and improvement of human welfare in the country.

What is the difference between capital and recurrent expenditures?

What are the types of expenditure?

Source: UGC

Recurrent expenditures mainly refer to spending on salaries, wages, operations, current grants, and purchase of goods and services.

Capital spending, on the other hand, is expenditure used on fixed asset creation, for instance, acquiring land, the building of schools and hospitals, and other tangible assets that are substantial.

Government officials must know the difference between capital and recurrent expenditure to make wise financial decisions.

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Funding sources for capital and recurrent expenditure

  • Foreign grants - these are all unrequited and non-repayable funds from international organizations and foreign governments. They include debt relief, funds to support budgets, and grants for projects.
  • Government revenue - this comprises of government tax, administration fees, on-tax revenue, capital revenue (sales of stock and asset), fines, and property income.
  • Net external Finances - government financing and transactions that are repaid, such as loans, long and short term bonds, and other available liabilities. They are offered by, international governments organizations enterprises and individuals not residing in Kenya

What is the total government expenditure?

recurrent expenditure items

Source: UGC

Total government expenditure refers to all government consumption, investments, and transfer payments. Government expenditure is a crucial part of any nation, and it gets funds from many sources, including borrowing.

What are the types of expenditure?

Examples of government spending include:

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  1. Government Final Consumption or Current expenditure - This is a type of government expenditure whereby they acquire services and goods for the current use of direct satisfaction of community and individual needs.
  2. Fixed capital formation or capital expenditures - This is also called government investments. It is the act of government acquiring goods and services to create the benefits of the future. These comprise of:
  • Research spending- it entails investing in defence, space, and genetics.
  • Infrastructure - this entails investments in the transport system, such as airport rods and railway lines.
  • Investments on health - these include distribution, building sound sewage systems, and collection of water.
  • It also involves investing in developing the communication System such as radio stations.
  • Transfer payments: This type of spending entails transferring money. It includes social security payments, pensions, and benefits of unemployment.

Having discussed recurrent expenditure, its definition, types, and impacts, it is clear that it is a significant part of the economy, which should be analyzed and planned keenly. If the government neglects it, it can lead to the underdevelopment and downfall of the economy of Kenya or any other nation.

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