By Ilyas Khan
The scene of the recent protest and the exhibitions of live pigs by civil society activists outside Parliament building against the demands by the recently elected members of Parliament for increased pay had almost an Orwellian feel to it. It certainly brought to ones’ mind the famous catchphrase in George Orwell’s book - The Animal Farm of “All animals are equal, but some animals are more equal than others”
Notwithstanding, the seeming insensitivity displayed by the MPs in demanding increased pay and the mess left outside Parliament Buildings by the demonstrators and their pigs, one really must ask the question as to what the underlying factors that triggered the demonstrations?
The main issue at hand is of course the increasing public debts that Kenya currently has. This plus the ever-widening current account deficit and a bloated wage bill are the three main obstacles for realising double-digit economic growth. Currently, the domestic debt has hit the Sh1 trillion mark and has increased the total public debt level to almost Sh2 trillion as the Government looks for money to finance old debts and recurrent expenditure.
The current account deficit (which is a measure of payments for imports against earnings from exports) has continued to widen over the past ten years or so, with the value of imports rising faster than that of exports.
This has further raised questions on the country’s ability to expand its exports base.
Ballooning wage bill
It is thus critical that the new Government makes considerable efforts to curb wasteful spending, which includes checking the rising wage bill and public debt if it is to fulfil the promises it made to Kenyans in its manifesto.
Currently, Kenya’s wage bill constitutes more than half the revenue collected by the Government, leaving little resources for development projects. Definitely if unchecked, the public wage bill is bound to increase as Kenya adopts the devolved governance system.
Worsening the position further is the admittance recently by the Kenya Revenue Authority (KRA) of not being able to meet the tax revenue collection target blaming subdued economic activity, particularly in February and March as the country went into the elections and which led to a slump in business.
However, the inability to meet targets by the KRA is not something that took place this year but has been there for a couple of years now.
All the above may seem rather gloomy. However, the picture is not as bad as it seems and as the saying goes – there is light at the end of the tunnel.
Agencies such as the World Bank and the International Monetary Fund (IMF) have indicated that Kenya’s public debt is sustainable relative to the total size and productivity of the economy and its debt is in good shape and the macroeconomic fundamentals are strong.
Europe’s debt crisis
Certainly, they are nowhere near the situation in Europe where public debt is very high. Currently, many European countries are facing huge debt crisis which, in some cases, has precipitated economic recessions.
The lead economist of World Bank in Kenya recently indicated that for global comparisons, Kenya’s debt would place the country third among the least indebted countries in Europe that is after Luxemburg and Estonia.
Definitely, the new government has indicated their plans to take measures such as cost cutting (including managing the wage bill), reduction of wastage and corruption, taking measures for diversification of exports, value addition on agricultural produce, creation of new products, and opening up of new markets.
Besides, the Government should also invest in making the country a business-friendly environment by reforming the business registration process and taxation regime.
The above coupled with the recent peaceful elections; the macro-economic stability should boost confidence among both local and foreign investors in the country as a good investment destination and lead to increased growth and stable economy in Kenya.
Ilyas Khan is Senior Tax Manager, Deloitte East Africa
