Experts warn of tough times unless Treasury changes tack

Treasury Cabinet Secretary Njuguna Ndung'u. [Edward Kiplimo, Standard] Budget experts in Parliament want the new administration to invest hugely in agriculture and small businesses to revamp the battered economy and lift incomes. The Parliamentary Budget Office in a new report has given a dire assessment of the economy and now warns that economic managers at Treasury must overhaul their economic model or brutal phenomena like the raging drought and mounting economic uncertainty will deal a blow to government efforts to turn around the financial sector. "Intensification of the drought conditions is likely to weigh down on growth even as food prices improve partly due to imports," they say. "Weak global growth, high global inflation, tight global financial conditions, the Russia-Ukraine conflict and high(er) energy prices constitute the external risks to this outlook." Their assessment comes at a time the new administration is facing mounting pressure to tackle the rising cost of living faced by Kenyans. The economists are now calling for targeted investment in agriculture and Micro, Small Medium Enteprises to boost their performance along with concurrent fiscal consolidation efforts in order to limit expansion of the fiscal deficit. They say there lies one the key the magic bullet in resolving the economic hit facing Kenyans "Targeted investment in agriculture and MSMEs as proposed in the bottom-up economic transformation plan will yield higher growth through increased contribution to growth from these sectors as well as increased household income to the workforce, majority of whom subsist in these sectors," says the report signed by Dr Martin Masinde the acting director Parliamentary Budget Office. The experts also reckon the planned ongoing privatisation programme will come handy for the cash-strapped government at a time when the new Ruto administration faces a narrowing fiscal space to roll out its policies, amid high debt repayment obligations. The government will earn a windfall of as much as Sh30 billion a year from selling troubled State-owned enterprises (SOEs), their new report shows. They say these earnings could surpass Sh110 billion in the near term as there are 248 State Corporations in Kenya, and it is estimated that the privatization program will primarily target commercial enterprises that account for 19 per cent of total state corporations. "Privatisation program can lead to proceeds worth Sh30 billion annually," says the report. "Depending on economic conditions, privatisation can raise between 0.5 per cent 8 and 1 per cent of GDP. For Kenya, depending on the privatisation methodology, targeted SOEs and response from private purchasers: the privatisation resources are estimated to range between Sh60 billion and Sh110 billion spread out over the medium," says the report. The sale of the troubled agencies aims to improve their performance and fill the State's coffers amid high levels of public debt. The report says the large fiscal windfall associated should be ring-fenced to avoid misuse and to help Kenya boost development and improve the standards of living for citizens through access to key services and amenities such as roads, health, food security and education. Proceeds could also help offset Kenya's mountain of public debt which has been approaching the Sh10 trillion ceiling. "For long-term impact, privatisation proceeds should be earmarked to capital projects that have potential to generate future revenues or be used to retiree expensive public debt," says the report. "Given that privatisation results will depend on its impact on the governments net worth (due to loss of dividend income), the proceeds should be reinvested in other priority areas (such as building Reserves), priority sectors with higher revenue generation and investment potential or public debt repayment." It however warns the State must address legal bottlenecks for the process to be successful. The State is already in the middle of the process to reform the legal framework. "Recurring challenges, including the repeal of the Privatization Act 2005," says the budget experts. "There is need to urgently review Public-Private Partnerships (PPP) law and enabling framework in order to ensure that the Government has an option to privation through a clearer PPP policy and framework that guarantees benefits to Kenya as opposed to the private sector players and foreign entities involved in the PPP process," it says. The sale aims to improve their performance and fill the State's coffers amid high levels of public debt. The government, supported by the International Monetary Fund (IMF), is making renewed efforts to offload some of the loss-making firms after more than a decade of failed attempts. President Ruto has said the government would privatise between five and 10 State corporations over the next year. He expects most of the privatisation to be undertaken through public offers at the Nairobi Securities Exchange (NSE), which he noted would also give citizens an avenue to buy into the companies. "My administration will revitalise the capital markets by embarking on privatisation of State corporations where divestiture is overdue and strategic as well as introduction of such innovative products as a domestic dollar-denominated bond," he said. "I have made a commitment that between five and 10 public enterprises that are mature should be listed in the next 12 months. "I expect that the private sector will work with the capital markets so that we can have private sector companies to also list at the (securities) exchange."

Experts warn of tough times unless Treasury changes tack

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