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Beware, our fiscal recklessness could be coming home to roost

Wednesday October 17 2018

Henry Rotich

National Treasury Cabinet Secretary Henry Rotich appears before the National Assembly's Finance and National Planning Committee concerning the Finance Bill, on September 19, 2018. PHOTO | FILE | NATION MEDIA GROUP 

ROBERT SHAW
By ROBERT SHAW
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The fiscal recklessness of the Kenyan government is coming home to roost for the Kenyan government.

In the same breath, we should remember that governments borrow on behalf of its citizens in theory for the ultimate benefit of those citizens. If it borrows wisely and prudently for projects that give value for money, with the relevant multiplier benefits, that is money well spent. If it does not, then its citizens get shackled with debt it has little to show for it.

Governments come and go but the debt burden incurred on behalf of its citizens lasts long after. And it is a burden because the citizens have to pay dearly for it out of their taxes year in, year out. That means a chunk of the money extracted from us by the government goes straight into debt repayment and interest charges instead of paying for goods and services.

OVERALL VALUE

The money diverted to debt servicing does not go into improving health and education facilities, for example, but paying for the relevant projects contracted over the past years. For example, the SGR debt repayment and interest is around Sh1.4 billion monthly.

This arguably biggest of the mega infrastructural projects, SGR I and II, has been trumpeted as one of the great feats the Jubilee government has pulled off. But besides the massive cost factor versus value for money, one must measure other key factors, such its overall value to the citizens.

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MEGA PROJECTS

The May 2017 cartoon of the SGR passing through protesting citizens carrying placards with demands for affordable unga comes to mind. SGR is, so far, a great boon for the middle class and, in time, possibly our commercial transport needs. But could it have cost less, so that the overstretched and underfunded budgets for basics got the money instead? When and whether its huge cost will be justified is an open question.

Now, the World Bank has raised a red flag over this propensity for expensive mega projects. It has also questioned a related area: The predisposition for wastefulness in the public sector in the form of poor value for money spent and its massive public wage bill. It argues that it crowds out development expenditure, which is one of the keys to sustainable economic health and growth. The bank casts the net wider to include county governments.

CLAMPING VEHICLES

A wander around the Nairobi County government offices recently reminded me just how poor and disjointed the service delivery of that entity is. To get a correct rates invoice often requires one to take in all the payment slips to be correctly posted. That is just one aspect of service delivery. The actual service delivery and record is chequered — except, maybe, in the clamping of vehicles!

Another fiscal red flag is that we often resort to borrowing expensively locally and internationally instead of going down the road of much cheaper concessional debt. One of the reasons local banks still make good money is, they have a large guaranteed borrower: The government. It borrows expensively, often locally, to plug its ever-recurrent deficits.

5.5 PER CENT

Take a look at the overall figure. Around 94 per cent of tax revenue goes into recurrent expenditure. Of this, 40 per cent pays salaries and wages and another 24 per cent goes toward debt servicing. As a result, development expenditure gets cut and cut even more.

Another area that needs to be questioned is the unrealistic, often delusional, forecasting of growth rates and revenues. The government tends to use figures projecting growth in excess of seven per cent when, in reality, we have been witnessing an average growth rate of around 5.5 per cent.

RADICAL SURGERY

Realistic forecasts of revenue put the figure at around Sh1.60 trillion. The government is working on a basis of increasing this by over 20 per cent. This is clearly not going to happen unless a miracle happens.

Therefore, the government is going to fall well short of revenue versus expenditure, which means the axe will need to fall real hard and fast in several areas. Hence, delay in Sh200 billion pending bills and a cacophony of short-changed county governments.

The World Bank is being polite about the fiscal mess and dilemma. If radical surgery does not take place to remedy the growing maladies, then we are in for big trouble. The borrowing window is closing.

Mr Shaw is an economic and public policy analyst:[email protected]

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