Poverty forces State to rethink spending plan 2009/10 budget economic growth

A broke Treasury and worries of a population fast falling below the poverty line are the key drivers in the government’s move to reassess its expenditure programme before the end of this financial year.

The former is a result of failure by government bureaucrats in charge of budgeting to appreciate and factor in the effects of a slow down in economy as they prepared the 2008/09 budget.

They simply ignored clear signs that the economic growth witnessed in 2003-2007 would shrivel as the post election violence and drought took their toll on the productive sectors of the economy.

The results were that they laid out an overly ambitious (Sh720 billion) expenditure programme that could only have succeeded if the country’s ability to generate wealth had exceeded the 7.1 per cent economic growth rate recorded in 2007.

Clearly ignored

Economic indicators in the first three months of 2008 had shown that the country was headed for reversed growth with a recorded negative 1.3 per cent growth rate that was later revised to negative one per cent.

Comparatively, the first quarter of 2007 had recorded a growth rate of 7.7 per cent.

That sign was clearly ignored in deriving what analysts were later to describe as a budget long on good intentions but short on specifics.

Worst of all, uncertain sources of revenue were looped in to seal a historic Sh127 billion budget deficit. Those sources-, borrowing from the international market, sale of public assets, and an ambitious growth in tax revenue- have all failed to raise money.

It did not take long before the threads tying up the expenditure started fraying, with the Kenya Revenue Authority announcing in October 2008 that it had missed its tax collection target by a significant Sh10 billion.

The tax collection targets had been set at 14 per cent over and above the 2007 collections and with the slowdown in productive sectors of the economy, the taxman would need more than a miracle to collect the Sh463 billion set in 2008/09 budget.

But with the reality finally hitting home, Treasury had by December 2008, announced that it would be reviewing the 2008/09 budget.

At the time, the reason given was that the country’s priority had changed from development focus to crisis management as funds were diverted to subsidise skyrocketing food prices.

“In view of the challenges (need to subsidise food prices) that are coming up, we are looking at our budget in order to identify those areas that are not critically important, and which can be ignored,” Treasury Permanent Secretary, Joseph Kinyua, said in December 2008.

That challenge in still alive and is becoming even more desperate as stratospheric food prices threaten to push the majority of the working class below the poverty line.

In the past 12 months, food prices have risen by an average of 30 per cent, meaning that to maintain the same portion of diet, Kenyans have had to scale up their food budget by a similar margin of 30 per cent every month.

Poverty bog

The hardest hit have been low-income earners and the lower end of the middle class who spend over 70 per cent of their income on food.

That means that the low income earners are sliding further into the poverty bog while those in the lower end of the middle class are now operating below the poverty line, meaning they are not able to afford not more than two meals a day.

This sorry state is well reflected by the fact that the cost of living in the lower income category of the Kenya population, as mirrored by monthly inflation rates, increased from 25 per cent in January 2009 to 31.9 per cent in February 2009.

This implies that every month, a third of the low income earners’ wealth is slashed off by high prices.

Comparatively, the upper middle class and the upper income groups experienced only a third of that pressure on their income with an inflation rate of 13.3 per cent.

In effect, the high food prices risk reversing gains made in reducing the country’s poverty incidence, which by 2007, had fallen from 56.8 per cent of the population to 46 per cent.

To address the food crisis and arrest the slide of the Kenyans back to abject poverty, the government will in the supplementary budget to be presented in Parliament later this month or in early April, be seeking authority from MPs to run a food subsidy programme in the country.

Too ambitious

Finance minister, Uhuru Kenyatta, will also be seeking to align state policies with market reality after it become clear to the government that policies laid out in the budget presented last June by the then Finance chief Amos Kimunya, are too ambitious to be carried out.

The two factors were some of the key highlights that the government presented to the International Monetary Fund (IMF) as it sought to borrow Sh80 billion to fund food imports and restock the foreign account balance at the Central Bank of Kenya.

“A revised monetary programme for 2008/09 will continue to aim to contain inflationary pressures while providing sufficient liquidity to support economic activity and rebuilding international reserves,” a statement released by IMF after its country visit read.