Treasury chief Henry Rotich lays out his plan to cure Kenya’s ailing economy

By James Anyanzwa

Roadmap:  National Treasury Secretary Henry Rotich takes over at a time when the economy is in dire need of recovery after five-years of lackluster performance, Weekend Business Writer James Anyanzwa caught up with the father of two and he offered his medication kit

(Q) Where were you when you first got to know that the Jubilee Government had picked on you as nominee for the post of Cabinet Secretary in the National Treasury and what was your immediate reaction?

(A) I first got this news when I was in the office. It came as a surprise and I had to equally adjust myself very quickly to the new reality.

(Q)  As the first cabinet Secretary at the National Treasury what is your vision for this critical institution and the economy as whole going forward?

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(A) As you are aware, the Kenya constitution 2010 and the Public Financial Management Act 2012 require us to establish the National Treasury. In this regard my vision is to establish the National Treasury as a dynamic and responsive institution providing quality and effective economic and financial management for accelerated growth and a sustainable development of our country.

It is my responsibility to ensure the promises made to Kenya by the administration are translated into realistic budget priorities and implemented efficiently and effectively. Building on progress we have made so far I will strive to ensure that we mobilise more resources for development through enhanced efficiency and without over-burdening Kenyans.

I will also forge strong partnerships with the private sector, civil society and our development partners to accelerate growth, create more jobs and offer increased opportunities for the poor.

 (Q) What are some of the radical changes you want to implemented at Treasury?

(A) The National Treasury has undergone important transformation over the recent past but more needs to be done.

My priority will be to review the current organisational structure and put in place a new structure of the National Treasury in accordance with the requirements of the Kenya Constitution 2010 and the Public Financial Management Act 2012 and with respect to devolution and transparency of the public finance function.

This will ensure a more responsible and efficient National Treasury that will be it easier to deliver on our promises and turn our dreams as a country into realities. We will deepen and broaden our public financial management reform efforts in line with the new Public Finance Management (PFM) strategy we launched in March this year, focusing particularly on revenue mobilisation and expenditure management including public procurement in order to ensure we always get value for money, working with the entire national government to rally everybody to embrace the idea of prudent use of public resources.

Procurement reforms will entail revising our procurement laws and procedures to enhance participation of Kenyans especially the youth in our development agenda and also ensure that the laws are not a stumbling block to achieving efficiency and effectiveness in public programs.

 (Q) What are the immediate challenges you intend to deal with at the National Treasury office and the economy at large?

(A)The main challenges that are expected currently include devolution, growing wage bill, escalation off expenditure proposals that go beyond our baseline ceilings and managing macroeconomic risks. As the National Treasury we cannot bury our heads in the sand because the issue of wage bill is very emotive. We must offer solutions and feasible alternatives and communicate this to Kenyans in a persuasive and convincing manner. The issue of wage bill must be looked at vis-à-vis the resources the economy generates, the tax rates that we cannot afford to raise, the current high youth unemployment levels and the level of wages in the EAC region and economies of the size of Kenya. At about 12 per cent of the GDP equivalent to about 53 per cent of revenues implying that we are spending more than half of our revenues on wages.

No one needs to tell us that this is unsustainable. Therefore as a priority we shall develop a wage policy with very clear objectives and principles that are already in the constitution and the PFM Act. We are going to work very closely with the Salaries and Remuneration Commission (SRC) in order to ensure sustainable wage bill.

 (Q) You are taking the reins of the National Treasury at the time when the Kenyan economy is facing serious challenges such as dwindling revenue collections, mounting public debt, mounting wage bill, high current account deficit and spiraling interest rates. What are your plans of action to jumpstart economic growth?

(A)  The Economic Survey 2013 revealed that real GDP grew by 4.6 per cent in 2012, up from 4.4 per cent in 2011; we estimate that in 2013 real GDP is to expand by 5.6 per cent picking up to over 6 per cent in the medium term. This will be bolstered by production following favourable weather conditions, completion of key infrastructure projects (such as roads and energy and implement robust initiatives to revamp irrigated agriculture in the next budget. In addition we will continue with structural reforms especially those targeted towards improving competitiveness of the private sector and promoting overall productivity in the economy, and exports benefitting from the relatively strong growth in the sub-region.

Finally domestic demand is expected to be robust following a drop in inflation, and increased investor confidence following the successful general elections. Expansion of revenue base will be achieved through measures to simplify the tax code in line with best practices, inorder to help improve tax compliance, minimise delays and raise revenue.

VAT legislation is expected to be passed by parliament while Kenya Revenue Authority is expected to institute measures to reform the tax administration to eliminate leakages and to expand revenue base. In addition Treasury will take the lead in rationalising existing tax incentives, expand the income tax base and remove unproductive tax exemptions as envisaged in the constitution.

To deal with the high Current Account Deficit I will focus on promoting growth in exports and ensuring that imports are mostly concentrated on capital goods that will boost growth particularly in new export sectors. High interest rates are a big issue and for the economy to grow they should be brought down. The rates have not been low enough to stimulate investments and it would be appropriate to provide a sort of market solution to this problem.

 (Q) What are some of the challenges you feel you will face while trying to allocate resources to fulfill the promises of government?

(A) In the National Treasury priority allocation of resources is our primary preoccupation. The only challenge currently lies in rationalising the promises committed in the Jubilee Manifesto.

However we are developing a structured mechanism that will help us to lay out the fulfillment of these promises carefully and in a sustainable sequence.

This involves aligning them to the broader Vision 2030, ensuring feasibility of each promise based on concrete fundamentals,  review capacities in various implementing units responsible for specific projects, as well as using a phased approach due to resource constraints. We will prioritise on the agenda of government by fastracking projects that will generate economic growth and improve the social wellbeing of Kenyans.

(Q) How does the Treasury intend to deal with the problem of declining revenue collections?

(A) I would not say revenues are declining, what has happened, especially this year is that we have had challenges especially with VAT. We have looked at these challenges together with the collecting agency KRA with a view of finding the root causes including changing taxpayer behaviours. Going forward we are going to address these challenges through administrative reforms. The VAT Bill which we expect to go through parliament soon will also be a step in the right direction.

 (Q) Do you think a five per cent growth rate is achievable?

(A) Yes! This is achievable. Compared to 2012 where the economy grew by 4.6 per cent, the outlook for 2013 looks more favourable as I outlined earlier in this interview, but without belabouring the point, the Government will lay emphasis on various key areas that will enhance our growth prospect. These are continued investment in infrastructure, addressing the root causes of weak competitiveness, supporting Small and Medium Enterprises and agri-business, supporting manufacturing, maximising the use of the country’s natural resources, deepening regional integration and enhancing food security through irrigated agriculture.

These together with expected external environment, favourable weather and robust domestic demand following successful general elections and a stable macroeconomic environment will ensure our economy achieves a robust real GDP growth.