Treasury faced with tough choices in government's quest to deliver Jubilee promises

Sunday January 3 2016

President Uhuru Kenyatta witnesses as H.E Mr. Guo Huncheng, Chinese minister for Commerce and Cabinet Secretary for National Treasury  Mr. Henry Rotich exchange documentation of three financial agreements they signed at State House, Nairobi last year. The National Treasury is faced with tough economic choices in the New Year as the government seeks to run against time in fulfilling its recurrent expenditure obligations with an overstretched needs purse. PHOTO | PSCU

President Uhuru Kenyatta witnesses as H.E Mr. Guo Huncheng, Chinese minister for Commerce and Cabinet Secretary for National Treasury Mr. Henry Rotich exchange documentation of three financial agreements they signed at State House, Nairobi last year. The National Treasury is faced with tough economic choices in the New Year as the government seeks to run against time in fulfilling its recurrent expenditure obligations with an overstretched needs purse. PHOTO | PSCU 

By BRIAN NGUGI
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The National Treasury is faced with tough economic choices in the New Year as the government seeks to run against time in fulfilling its recurrent expenditure obligations with an overstretched needs purse.

This is complicated by the rush to implement flagship mega projects to the tune of trillions of shillings.

In political terms, the New Year, observers agree, is the “make or break” year for the Jubilee administration, which will be subjected to a General Election next year.

It is during that election that Kenyan voters will give a score card for varied promises made by the President Kenyatta administration.

More importantly in economic terms, however, experts say that the stakes for the economic managers of the country are higher as the economy will not be spared from the shocks of the global economy.

“The shilling may resume its loss of value against the dollar (and other major global currencies) due to the surge in imports, our inability to increase export earnings, and the sluggish growth in tourism. Government at national and county level will have to cut down on spending to reduce the public sector deficit running at an unsustainable 10 per cent. That will be really difficult to do as we go into an election year,” says economist and University of Nairobi lecturer Prof Michael Chege.

The past two years were marked by tough spells for the Treasury as economic shocks took a hit on the economy, impacting negatively on the taxman’s ability to collect much needed revenue.

Notably, the Treasury struggled to honour some of its crucial obligations in health and education sectors.

Granted, a glimmer of hope for the struggling economy was reported in the twilight of 2015 with government data showing the economy expanded by 5.8 per cent during the third quarter of 2015 compared to 5.2 per cent recorded during a similar period in 2014.

Cabinet Secretary Mr Henry Rotich has said that to safeguard the gains, the Treasury will this year “continue to be prudent” in its fiscal programme.

FAVOURABLE WEATHER

“Looking ahead in 2016 and near-term, our economy will remain resilient and we should see our economy growing by at least over 6 per cent on the back of favourable weather, recovery in tourism, and continued strong investment as the business environment improves. Completion or near-completion of several infrastructure projects initiated by the Jubilee administration including the standard gauge railway should accelerate growth.

We will continue to be prudent in our fiscal programme ahead of the General Election. In sum, I am sanguine about our growth outlook and that key Jubilee programmes will be attained,” Mr Rotich told the Sunday Nation as the year closed.

But experts say the Treasury must do more in balancing the need for executing its money hungry fiscal programmes based on the prevailing tight conditions.

For starters, faced with the monumental need for additional capital to implement the crucial projects, experts say the Treasury must reject the allure to continue on a debt spree as this will strain the country’s fiscal position even more.

The Treasury estimates it requires Sh5.8 billion to fund several mega projects which are ongoing or set to start this year.

They include the Sh2.1 trillion standard gauge railway whose first phase is 65 per cent complete, the 10,000 km road project and the Sh400 billion one-million-acre Galana-Kulalu irrigation scheme among others.

According to Ernst & Young Tax Partner Francis Kamau, the country’s debt has hit crisis levels and it would be imprudent for the Treasury to saddle Kenyans with more debt.

PERCENTILE POINTS

“At the current total debt levels of Sh2.934 trillion, which represents 51.9 per cent of the Debt to GDP ratio exceeding by 8 percentile points the ideal 45 per cent ceiling set by the Treasury, the Government needs to worry about adding on more debt,” said Mr Kamau.

On the other hand, Mr Kamau warned that increasing taxation would mean more pain for Kenyans, a route many other observers maintained the Treasury would be reluctant to take with a looming election.

“We have reached the zenith of taxation for this country. The Government can only increase its tax base but not its taxes,” asserted Mr Kamau.

Mr Kamau offered that the country and the Treasury is faced with three options as it strives to honour its budgetary and financial obligations.

“One of the preferred options is to reduce wastage of public resources. The second option is to eliminate graft and the third option is to decrease the size of government through a constitutional referendum,” said Mr Kamau.

According to him, Kenya is over- represented politically and this has the economic consequences of draining public coffers through a bloated government.

“Democracy is expensive yes, but it is time Kenyans vote to cut the size of government,” said Mr Kamau.

Already suggestions have been made by sections of legislators on the best way to do this.

A prominent proponent of this route is Gatundu South legislator Moses Kuria who has made suggestions for the slashing of the size of elected public officials.

Mr Kuria has argued that the country’s government structure is bloated and ineffective, requiring urgent resizing.