Budget office criticises Yatani for ignoring priority areas

The Parliamentary Budget Office (PBO) has torn apart Treasury's budget for the new financial year that starts in July, arguing that it has mixed up priorities and lacks a stimulus package to jump-start the economy.

In its latest report dated May 2020, “Unpacking the Estimates of Revenue and Expenditure for 2020/2021 and the Medium Term”, the budget office has also raised concerns that the Treasury has left the fight against the Covid-19 pandemic to well-wishers, which is not sustainable.

The taxpayer funds the office that provides professional advice in respect of the budget, finance and economic matters to parliamentary committees.

It also notes that the economic crisis brought about by the Covid-19 pandemic may outstrip the health crisis, as hopelessness grips those who lose their jobs.

As such, PBO says the budget ought to have been prepared in an extraordinary manner to take care of the vulnerable in the population.

In the new budget, the government expects to generate Sh1.8 trillion as total revenue against a total expenditure plan of Sh2.7 trillion.

This leaves the government with a fiscal deficit of Sh858.8 billion, the biggest budget deficit in Kenya’s history, which will see the government borrow a staggering Sh736 billion in the 2020/21 fiscal year.

KEY CHALLENGES

The budget office notes that the tone of the budget assumes that business is normal despite the highly unusual environment the country is currently operating in.

“The strategy, it appears, is to leverage on past investment decisions, specifically the Big Four related projects, in order to move the economy forward. However, it should be noted that over the past two years, the Big Four projects have struggled to take shape and many of the targets are yet to be achieved,” the report says.

It notes that the Supplementary II budget for 2019/2020 removed resources allocated to meet some manufacturing agenda targets, including reduction of allocations for critical infrastructure at the proposed Naivasha Industrial Park and Kinanie Leather Park.

“Similarly, the food security agenda faces challenges in various fronts, including the current locust invasion, weak marketing strategies, and weak input subsidy systems.”

The PBO views slow execution of government projects as a major hindrance to development “and may, therefore, not be a reliable driver of economic growth in the coming financial year”.

HEALTH SECTOR

The budget office notes that Covid-19 is arguably the single most important parameter this year, with the capacity to significantly and adversely affect economic performance and the outlook of various economic indicators.

“Over a span of two months since the first case was reported in the country, the disease has emerged as a health crisis that is quickly morphing into an economic crisis, and a humanitarian crisis,” PBO says in its report.

It notes that given the crisis at hand, the ideal response strategy, drawing from emerging international trends, is to introduce an economic reform package that not only addresses immediate health and income needs, but also proposes a roadmap for the next phase of recovery.

The PBO has criticised Ukur Yatani's 2020/2021 national budget on grounds that it falls short in this aspect.

“Immediate needs basically entail boosting the capacity of the health system to respond to disaster as well as providing an income safety net to deal with hunger and other needs particularly for the urban poor who are the hardest hit,” the report notes, adding that much more effort should have gone towards recruiting additional health workers and revamping health facilities, “particularly the referral hospitals and acquisition of medical equipment”.

MITIGATION RESPONSES

Mr Yatani’s new budget does not seem to prioritise these needs, focusing instead on areas that are not critical in the current circumstances.

“Indeed, except for a Sh2.6 billion allocation towards mass testing of patients under the Kenya Covid-19 Emergency Response Project, the health budget remains more or less the same with only slight upward adjustments probably to cater for inflationary trends,” the report asserts.

The PBO also found no significant changes towards revamping referral hospitals or boosting research in Kemri or for mass recruitment of health workers.

With regard to hunger or safety nets, the budget office says it would have been useful to have a strategy for direct cash support for those who have lost livelihoods, particularly the urban poor.

It says most ongoing Covid-19 mitigation responses are being done outside of the budget framework, that is, through the Covid-19 Emergency Response Fund, which is mostly financed through donations by well-wishers and is managed separately from the Consolidated Fund.

“Though the Covid-19 Fund is an important intervention particularly with regard to raising resources, it may not be sustainable and should not be relied on solely to mitigate the impact of the crisis,” the report says, adding that the national budget must play its part.

SHIELD SMEs

PBO says it is now time for an economic stimulus through the budget.

The report argues that the ongoing crisis is not due to a failure in the natural interaction between the forces of supply and demand, and as such, conventional monetary and fiscal policy may not be adequate to facilitate an economic comeback, especially if the crisis is prolonged.

“Both demand and supply have collapsed largely due to Covid-19 containment measures. As a result, the government has to intervene significantly in order to mitigate the crisis,” the report says.

For the next phase of recovery, the report says, the 2020/2021 budget should have also included measures to jump-start the economy as the health crisis wears off rather than leaving the recovery to market dynamics.

“Arguably, one of the most crucial measures would have been to protect businesses, particularly the MSMEs who are the hardest-hit. Some businesses may never recover from this crisis, especially if the crisis persists into the third quarter,” the report notes.

In the new budget, the national government share of wages and benefits to revenues is projected at 36.9 per cent.

This contravenes the law, which stipulates that the expenditure on wages and benefits should not exceed 35 per cent of the national government equitable share of the revenue.

It says the National Treasury has acknowledged this and is attributing it to the significantly reduced revenue projection for FY 2020/21.

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