Why MPs bear huge blame for Kenya’s debt problems

Parliament Building. Before the budget was read, a stalemate played out between the National Assembly and the Senate over the Division of Revenue Allocation Bill 2019. [Standard]
Henry Rotich may be heading the powerful Treasury docket in the public eye, but his influence as the Cabinet Secretary in charge of the country’s coffers remains weak.

Unlike his predecessors, most of Treasury’s powers were transferred to Parliament in the advent of the new Constitution.

For instance, it snatched the CS’s powers to hide the contents of the Budget.

Even as Rotich was preparing to read his speech recently, a stalemate was playing out between the National Assembly and the Senate over the Division of Revenue Allocation Bill 2019 that would determine exactly how much the 47 counties would receive from the Exchequer.

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The Senate had asked for Sh327 billion, but the National Assembly would only approve Sh316 billion, with neither organ willing to cede ground on the Sh11 billion gap.

At Sh11 billion, the difference between what the National Government is offering in conditional transfers and what the Senate is requesting seems small in contrast to Treasury’s Sh3 trillion spending plan. The stalemate is, however, more of a power play between the National Assembly and Senate where the latter is seeking to assert its financial autonomy, while the former looks to exert more influence on the country’s purse strings.

And the supremacy battle has been happening year in, year out since the enactment of the new Constitution. Ironically, although the matter relates to cash allocations,  Treasury’s role in the issue is almost nil.

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“We all need to tighten our belts a little bit,” said National Assembly Budget and Appropriations Committee (BAC) Chairman Kimani Ichungw’a. “The State has done its bit every time there are austerity measures… the counties never ever institute any austerity measures,” he said. This is another classic example of how MPs are the biggest stumbling block to achieving fiscal consolidation.

Instead of checking the executive’s borrowing and expenditure, lawmakers have over the years used their oversight function to extract more perks for themselves, giving the executive a blank check to sink the country deeper into debt. Taxpayers and small businesses have instead been left to pick up the tab.

In the next few weeks, for example, the State will start collecting a 16 per cent tax on all goods and services exchanged over the Internet as part of new levies introduced on e-commerce. The new tax targets one of Kenya’s fastest growing sectors and like the introduction of excise charges on digital transactions is effectively a case of killing the goose that lays the golden egg.

While the new tax targets large platforms such as Jumia, Kilimall and Safaricom’s new e-commerce site Masoko, many small enterprises that rely on online market places for their sales will be slapped with the new taxes that will inevitably raise the cost of doing business and erode already thin margins.

The VAT on e-commerce transactions is the latest attempt to raise revenue and narrow the Sh600 billion budget deficit that is projected to hit Sh800 billion by next year. Treasury’s remedy for filling the gap over the years has been to soak up more debt, with Parliament turning a blind to its excesses. This has seen the country inch closer to a debt trap.

“History has shown a tendency for the Government to fail to adhere to its expenditure plans in the course of the year with upward adjustments during the supplementary budget, particularly for the recurrent estimates,” said the Public Account’s Committee in its report for the 2019/2020 financial year.

“This is compounded by revenue underperformance, leading to budget reorganisation and rationalisation mostly for the development budget.”

The committee has, however, failed to account for Parliament’s failure to block the Executive from pushing the country into more debt even when the expenditure has roundly been deemed inappropriate.

Loan balances

The Public Finance Management (PFM) Act 2012 says: “The CS shall submit to Parliament, every four months, a report of all loans made to the national government, national government entities and counties.”

 Treasury is mandated to provide either the Senate or Parliament with a report of all loans made to the national government, national government entities, and county governments, within seven days upon request. “At the end of every four months, the CS shall submit a report to Parliament stating the loan balances brought forward, carried down, drawings and amortisations on new loans obtained from outside Kenya or denominated in foreign currency, and such other information as may be prescribed by regulations,” states the Act in part. In press conferences and political rallies, MPs are quick to condemn Treasury’s huge borrowing appetite, a role that is within their powers to regulate.

But in their chambers, MPs have used their oversight power to negotiate for more perks, and in some instances, threatened to sabotage government functions if they do not get their way.

A few weeks before reading the 2019/2020 budget, Treasury borrowed Sh75 billion from the World Bank for budgetary support. This was the first time the State had turned to the World Bank for such, indicating the dire situation in which the country finds itself.

Data from Treasury’s medium debt strategy indicates Kenya will need to make more than Sh1.2 trillion in external debt repayments in the next two years.

At the time, CS Rotich was begging the World Bank for more loans, the Parliamentary Service Commission (PSC) decided to pay MPs and Senators Sh250,000 each in house allowances backdated to October 2018. The SRC has since moved to court to block the payments, terming them unconstitutional and amounting to paying MPs twice since the allocation is already factored in the basic pay.

“The payment of this house allowance to MPs and senators amounts to double payment of a benefit which is already included by SRC in the gross pay,” said SRC Chair Lyn Mengich.

“This unconstitutional action by the PSC  to pay MPs and Senator’s house allowance of Sh250,000 monthly will cost taxpayers an extra Sh104 million every month, which is Sh1.2 billion annually.”

Public servants

In return, Parliament approved the second Supplementary Budget for the 2018/2019 financial year, including an Sh80 billion spike in recurrent expenditure that will mostly go to wages and allowances for public servants.

MPs are predictably united when awarding themselves higher pay at the expense of taxpayers and have demonstrated the lengths they are willing to go to entrench their impunity.

BAC slashed Sh126 million from the 2019/2020 budgetary allocations to the SRC to “teach the commission a lesson.”

This is not the first time. Last year, Parliament sought to introduce amendments to the PFM Act 2012 to give the House more powers to oversight State expenditure as well as approve it.

This followed revelations that the State had awarded US construction firm Bechtel a Sh300 billion tender to build the Nairobi-Mombasa expressway without following the due process.

To appease the MPs, Treasury made a six-fold increase in their pension allocation from Sh292 million in the 2017/2018 financial year to Sh1.7 billion in 2018/2019.

The biggest chunk of the additional pension bill went to one-off payments for the 196 MPs who lost their seats in the 2017 polls.

Treasury allocated an additional Sh35.7 billion to the Constituency Development Fund, with each of the 290 constituencies receiving Sh118 million to finance development projects.

The concessions saw Parliament rubber-stamp Treasury’s appetite for more loans even as the World Bank warned that public debt levels were pushing Kenya into “premature austerity”, further hurting the economy and job creation.

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Public Finance ManagementThe ExecutiveParliamentKilimallSafaricomNational AssemblySenateDivision of Revenue Allocation Bill