Analysts tip Treasury spending to be the biggest threat to the economy this year

Wednesday January 27 2016

CfC Stanbic Bank’s regional economist, Mr Jibran Qureishi on January 26, 2016 during a forecast on the Kenya’s economic performance this year. It warned that the temptation to overspend ahead of an election year should be avoided at all costs. PHOTO | ROBERT NGUGI | NATION MEDIA GROUP

CfC Stanbic Bank’s regional economist, Mr Jibran Qureishi on January 26, 2016 during a forecast on the Kenya’s economic performance this year. It warned that the temptation to overspend ahead of an election year should be avoided at all costs. PHOTO | ROBERT NGUGI | NATION MEDIA GROUP 

By OTIATO GUGUYU
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Treasury spending will be the biggest threat to the Kenyan economy in 2016 should it not contain the rise in expenditure in relation to the revenues collected.

Analysts say being a year before election, the government is always tempted to overspend to please the electorate.

But if the government runs a huge budget deficit this year, the pressure to finance it would throw a rather positive outlook of the economy into turmoil.

“We are in a pre-election year and while spending on development will increase future productivity, the government ought to ensure that recurrent expenditure does not get out of control,” CfC Stanbic Bank Regional Economist Jibran Qureishi said in Nairobi on Tuesday.

Although last year the government managed to defer paying teachers, they have committed to a collective bargaining agreement that might ultimately be granted in an election period.

The Kenya National Union of Teachers is still angling for a 50-60 per cent pay raise meaning the government may dish an extra Sh17 billion which would increase the wage bill from 52 per cent to 61 per cent revenue collected as per 2014 figures.

FREEZE EMPLOYMENT

The National Treasury also said it would freeze employment and cut nearly 40,000 jobs to tame the wage bill.

A consultant hired by the government to carry out capacity assessment and rationalisation had recommended the retirement of 40,000 staff at a cost of Sh185 billion.

Analysts say this is also unlikely given the political apprehension which might push restructuring as promised to the International Monetary Fund to after the elections.

“Arguably it may not be politically prudent to drastically cut recurrent expenditure in a pre-election year, however it may be prudent to push forward some development projects,” Mr Qureishi said.

Africa Global Research Standard Chartered Chief Economist Razia Khan said that development expenditure will be the likely victim.

SUPPLEMENTARY BUDGET

“Projects that have not yet commenced might be deferred to a later fiscal year, making some expenditure savings in the process and further reducing the borrowing requirement,” Ms Khan told the Nation via email.

The National Treasury is currently putting together a supplementary budget which is expected next month that will see cuts in spending, consolidation of expenditures and restructuring of the debt ratios.

However analysts say the government has a tendency of doing the opposite of what it promises.