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Public debt is essential for functioning of government, economy

Sunday November 17 2019

Ukur Yattani

Acting Treasury Cabinet Secretary Ukur Yatani. PHOTO | FILE | NATION MEDIA GROUP 

SUNDAY NATION TEAM
By SUNDAY NATION TEAM
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1. What do you make of the recent wave of layoffs that have hit companies and what does that say about the state of the economy? Fred W. Mukasi, Nairobi

The layoffs are not a widespread phenomenon. As the 2019 Economic Survey attests, wage employment in the formal sector recorded an overall growth of 2.4 per cent in 2018. Although this was a decelerated growth as compared to the 4.1 per cent recorded in 2017, the government has put in place measures to stimulate the economy, including creating an enabling environment for the business community, which has seen Kenya ranked 3rd in Africa and 56th globally, having moved up five places in the latest ranking according to a report by the World Bank on Doing Business Report 2020. I want to assure Kenyans that the economy remains strong and resilient, growing by 6.3 per cent in 2018, up from 4.9 per cent in 2017. Our average growth for the period 2013 to 2018 was 5.7 per cent. This economic expansion has raised per capita income from Sh113,539 in 2013 to Sh186,297 in 2018, a 64 per cent increase and it created around 831,000 new jobs per year in the period 2013-2018.

2. Despite the touted economic growth story, poverty levels and unemployment remain high. What are you doing to ensure that the growth is inclusive? Raphael Obonyo, Nairobi.

Kenya’s economy remains resilient. We have noted reduction in the poverty rate from 46.6 per cent in 2005/06 to 36.1 per cent in 2015/16 (Source: Kenya Integrated Household Budget Surveys of 2005/06 and 2015/16). Over the same period, unemployment rate declined from 12.7 per cent to 7.4 per cent. To further make Kenya’s growth more inclusive, the government is investing in job-creating sectors, key among them manufacturing, agriculture, construction, tourism and information, communication and technology. The government is also implementing programmes to support inclusive growth through the National Government Affirmative Action Fund and the Equalisation Fund. Furthermore, to cushion the poor, the government, under the National Safety Net (Inua Jamii) Programme, provides cash transfers to vulnerable groups such as orphans and vulnerable children, the elderly and people with disabilities.

3.. The low number of youth turning up to take the 30 per cent government procurement tenders reserved for them indicates something is wrong. What are you doing to streamline it? Raphael Obonyo, Nairobi

Youths all over the country, despite diversity of skills and sometimes limitations of access to financial capital, are given opportunities to bid for government tenders and supplies and every three months, reports are filed with the National Treasury.

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4. We have heard reports that the government is broke, is this the case? Githuku Mungai, Nairobi

The economy is not only strong and resilient but also portends better prospects in the future when we start reaping the full benefits of the huge infrastructural development, including SGR. The economic growth at 6.3 per cent (2018) and projected at 5.7 per cent this year is way above the global average of 3.6 per cent and 3.0 per cent for Africa south of Sahara. Inflation at 3.8 per cent, which is a drop from 5.6 per cent last year, could be lowest in many years. The stable exchange rates give predictability and confidence to international trade. We have sufficient foreign exchange reserves at the Central Bank to support and sustain imports for the next six months. Kenya has also never defaulted on its debt payment/obligations. The possible reasons there have been lots of noises is because of the reforms we have initiated in the past three months, which include deliberate revision of the 2019/2020 budget to reflect realistic revenue targets, initiation of austerity measures to make savings from recurrent expenditures including travel, training and raising additional funding for the Big Four Agenda, whose long-term effect will be beneficial to the country, removing interest caps, carrying out aggressive fiscal consolidation plan, and initiating aggressive revenue enhancement measures. The net sum of all these radical measures is controversial but necessary if we are to rein in cost of running government by avoiding wastage. We are fully committed to ensuring that all the planned programmes are implemented without delay.

5. The Central Bank of Kenya governor recently said Kenya’s economic model is dysfunctional, with growth in the gross domestic product but on the ground you have high unemployment, mass retrenchment, soaring cost of living, high taxes, prohibitive cost of doing business and despair. Why are the growth figures not translating to general well-being of the people? Ann Njoki Njung'e, Limuru

Many indicators attest to improved welfare of Kenyans. For example, in the last decade, GDP per capita has improved from $905.1 in 2009 to $1,710.5 in 2018, life expectancy has improved from 59.9 years in 2009 to 66.7 years in 2018, while literacy rate has improved from 61.7 per cent in 2009 to 78.7 per cent in 2018. Our economic policies, including the implementation of the Big Four Agenda, seek to further enshrine broad-based improvement of welfare among Kenyans through creation of jobs under the manufacturing sector, decent living conditions under the housing, food and nutrition security and better healthcare.

6. We heard from the Senate floor during the debate on the Finance Bill 2019 that the exact road design, same route and distance from JKIA to Westlands had been approved for just about Sh20 billion under the Kibaki presidency. Under your leadership at the Treasury, the construction hit a staggering Sh65 billion. This was after ignoring World Bank funding for the more expensive commercial loans by China. What has changed? David Maranga Kariuki, Langata

The design of infrastructure projects and technical analysis is done by the relevant ministry and they have full information. Though you shouldn’t forget that Mr Kibaki left the presidency close to 10 years ago and construction costs change over time as a result of cost of materials and economic dynamics.

7. There is a huge backlog of payments awarded by courts (damages) against which no appeals have been lodged. How are these captured in government financial reports? David Okello, Nairobi

Payments relating to court awards are handled by the respective ministries, departments and agencies, after clearance by the Attorney-General’s office. Payments are done through the normal process, subject to budget provision. More comprehensive details may be obtained from the AG’s Office.

8. Would you consider zero-rating textbooks bearing in mind the multiple taxation? Njoroge Waweru, Kikuyu

There is no multiple taxation of textbooks considering that, one, text books are not subject to import duty. In addition, the inputs (paper) used in the manufacture of textbooks are imported at zero per cent duty under the EAC Duty Remission Scheme by registered manufacturers.

There is, therefore, no import duty impact on either the final product or the input for producing that product. Two, textbooks are not subject to excise duty, and three, value added tax (VAT) payable on paper used to manufacture textbooks is deductible from the VAT payable on the final product (textbooks). Therefore, the observation that there is multiple taxation on textbooks is false. The cost of textbooks should, therefore, not be attributed to taxes.

9. Do the delays in remitting bimonthly cash transfers to the elderly and pensioners have anything to do with the government being broke? Komen Moris, Eldoret

The State Department for Social Protection requested for cash transfers to the elderly and vulnerable groups on October 29. On November 7, the National Treasury funded the department with Sh8.6 billion for cash transfers to the elderly and vulnerable groups. The department has already disbursed the funds and the concerned ministry remitted to various bank accounts of beneficiaries.

10. What is the justification for allocating huge budgets to ministries for functions that have been devolved such as health and agriculture? David Okello, Nairobi

The constitution devolved a number of functions from the national to the county governments. Although the two levels of governments are distinct, they are interdependent in serving wananchi. It is worth noting that exclusive functions may fall under either level of government. A concurrent function means more than one level of government does it. Such functions include housing, planning, transport, water and disaster management. From the above reasoning, some programmes and projects cut across the two levels.

11. Many efforts to stop usage of fuel guzzlers by government officials have come to nought. Will you succeed where others have not? Raymond Kanyingi

Measures put in place to enforce ceilings of vehicle engine capacity rating have been successful considering that a lot has been achieved as guided by Section 144 of the Public Finance Management Regulations, 2015, which is clear on the engine capacity rating of official motor vehicles procured for use by the government officers. Any person who contravenes this regulation commits an offence. Motor vehicles parked at Bima House are either awaiting repairs or are in the process of disposal as stipulated in the Public Procurement and Disposal Act, 2015 and the Chief Mechanical and Transport Engineer who has the role of advising ministries on which vehicles to be disposed of according to the Government regulations.

12. Your predecessor Henry Rotich was a technocrat who failed to tame the ballooning debt and immense borrowing. What are your plans to bring back the best to this country?   Jeff Chepkwony, Sigor – Chepalungu

Public debt is essential for the functioning of the government and the economy. But the rate of debt accumulation has significant effects on fiscal policy. The higher the public expenditure relative to revenues, the higher the debt accumulation. The National Treasury will continue implementing fiscal consolidation efforts focused on reducing government expenditure and public wage spending.