It has emerged that the Government is seeking approval of a supplementary budget to the tune of Sh86.6 billion. Most of this money will go to development spending, in a measure that the Treasury characterised as a reorganisation of spending to prioritise either new or existing development projects.
The money will go to roads, health and other infrastructure projects targeting the manufacturing sector. The fiscal deficit will increase to 6.3 per cent of projected economic output for the fiscal year (GDP).
The announcement of the supplementary budget is yet another indication of the fiscal indiscipline of President Kenyatta’s regime. A perusal of headlines over the last year would reveal more than Sh60 billion in stolen money. Whole dams, schools, hospital equipment, irrigation projects and medical equipment were financed but never saw the light of day. The money simply disappeared into private accounts of individuals in this administration. This is unconscionable.
The “borrow and steal” mentality that has been the core driver of public spending under Kenyatta continues to sink the country deeper into debt. In announcing the supplementary budget, The Treasury also noted that the Kenya Revenue Authority (KRA) will miss its revenue target. The economy is simply not growing fast enough to keep up with the financial indiscipline of this administration. We borrowed billions, came up with hairbrained “projects” that were really merely about stealing money, and now those projects are not producing the needed economic expansion to generate revenue to repay the debt. The Standard Gauge Railway (SGR) is operating under capacity. Projects to boost agricultural productivity stalled. Cartels in the power sector are milking the public dry as the country continues to pay for expensive power it does not consume.
To make matters worse, Kenyatta’s administration has been binging on expensive loans and ignoring cheaper concessional loans. Indeed, this week, the Treasury confessed its desire to reorient borrowing towards concessional loans. Why haven’t they been doing this all along? While Kenya may have jumped places to a “lower middle-income country” status, we are still eligible for a variety of cheaper loans than the Eurobonds that have been issued (and pilfered) since Jubilee came to power.
The Government is quickly running out of fiscal runway. The recent scrapping of the interest rate limit will increase the cost of domestic borrowing. And if the Government keeps borrowing domestically, it will continue to crowd out domestic lending, thereby further stifling the very growth it needs to generate tax revenue to service ballooning public debt (already over 62 percent of GDP). The other risk will likely come from devaluation of the shilling. Most of our foreign debt is denominated in dollars, which means that when the value of the shilling declines relative to the dollar, the net effect is an increase in the total amount we owe. Finally, the biggest structural risk comes from the fact that the economy is not growing in the right ways. Infrastructure spending has been turbocharging the economy for six years, but in the wrong ways. All that spending is not having the desired effect, for the reasons outlined above.
The overall lesson is simple. We cannot continue to run the economy like a corner kiosk. It is time for Treasury to clean up its act, and Kenyatta to show real leadership.