Why Ruto's economic reform will not work unless he takes care of our money

Under pressure to tremble revenue collection, KRA. [File, Standard] The Kenya Kwanza administration under President William Ruto and his deputy Rigathi Gachagua is hard at work. They are telling us they are determined to change our economic game, which could also change our social and political ones. While the rule of law gets the occasional mention, the message of the moment is "it's the economy, stupid!". For this reason, much attention has been placed on the President and his Deputy's policy addresses to the private sector in particular. Expanding the financial market space beyond traditional bank dominance, on both the savings and credit side could create exciting new capital market possibilities. Strengthening PPPs (public-private partnerships) as well as actual PSP (private sector participation) in the investment agenda will release important fiscal space to focus on the social agenda, as well as committed debt obligations. Bringing MSMEs to the centre of economic policy without running down existing trade and industry makes eminent sense. A more citizen and business-friendly attitude to government services (no more "madharau") will encourage tax compliance and non-tax revenue collection. While phrases like "freedom" and "independence" are correct, the better message is we must get going on our "journey to self-reliance". Less in focus is what is apparently being done quietly. Remember my theme: "leadership is what happens when nobody is watching"? As President Ruto pointed out at last Friday's Annual Taxpayers' Day, efforts to revive long-delayed reforms, such as the national rating framework (critical for county own-source revenues) and increased NSSF contributions (as part of the savings-investment agenda) are underway. An important point to make here is that the old policy-law combo is not the only spanner in the reform toolbox, sometimes simple regulation or basic gazette notices in the case of self-executing policy and law suffice. Of particular interest in Dr Ruto's address was his reference to Kenya's PFM (public finance management) framework. As a KRA event, it came as no surprise that his remarks were directed at the national tax collector. As we heard it, KRA must meet its current Sh2.1 trillion tax target for 2022/23 (because Sh300 billion is non-tax revenue plus foreign grants), grow this to Sh3 trillion in 2023/24 (next year) and get it to Sh4.2 trillion in 2027/28 (double the current year). Or did he mean Sh3 trillion in taxes this 2022/23 year and Sh6 trillion in 2027/28? While the rule of law gets the occasional mention, the message of the moment is "it's the economy, stupid!" [File, Standard] For the avoidance of doubt, the current electoral term, from a performance perspective, ends in 2026/27 (though the current administration will craft the 2027/28 budget). Whatever the case may be, with this level of the stretch target, universal culture change is needed from KRA's enforcement proclivities to taxpayer compliance attitudes. Ditto the one which, logically, requires an automatic PIN for every ID. Interesting data was offered. Seven million taxpayers (are these PIN holders or active taxpayers?) versus 30 million Mpesa accounts (are these unique individuals/ businesses or are there multiple registrations?). If this is about IDs, the pre-2022 election voter register audit by KPMG might be a great starting point, they counted about 28 million valid ones. Of course, as said before, the long-term answer here lies in integrated and seamless digital national identification: a single source and version of identity truth that goes better than the Huduma Namba fiasco. As the President and his team seek to equally reshape the spending side of things, we should look forward in the immediate term to what the downsized-by-Sh300 billion 2022/23 supplementary budget tells us. In the context of an increasingly uncertain global outlook, we might also look forward by this time to the sort of economic strategy put forward by his team to not simply recover, but "shock-proof", the economy. There is a second point mentioned at that tax event - the need to leverage technology across our tax, and broader PFM, framework. Having promised in a previous column to return to IFMIS (Kenya's Integrated Financial Management Information System) as the second-level to the search for fiscal truth, this is as good a time as any to return to PFM and its implementation. Let's start at the beginning and walk together. The practical way to view PFM is in four parts, the first two of which are PPB (policy, planning, budgeting) and implementation (work plans, procurement, budget execution (including treasury and cash management) and project implementation and service delivery). The other two parts - accounting and reporting (in better systems prefaced by tracking and monitoring) on one hand, and audit, and oversight (again, in better systems, including evaluation) on the other - are essentially post-fact events. Each part needs three sets of CSFs (critical success factors) - 3S (structures, staff, skills), CSV (culture/norms, shared values) and PST (processes, systems, technology) - good people, values and tools. The rest of this article focuses on PST (processes, systems and technology) although structures, staff, skills and culture/norms and shared values are just as, if not more, important. Anyway, for purposes of improving PFM, there is a useful entry point titled the PFM Reform Program (PFMR). The elephant in the room. [File, Standrd] Drawing on significant development partner support, this program has run since 2006, and is in its third strategic iteration (PFMR 2018-2023, it's in its final year though a mid-term review is in progress). The current five-year PFMR is a Sh12.3 billion effort split into three components - Sh3.7 billion on "design and implementation" activities, Sh4.6 billion on "systems development" activities, Sh3.5 billion on "capacity building" activities and Sh500 million on coordination. This is a high-level summary, and it deserves a more detailed read, though a recent website post states "we are on track". PFMR is a "whole of government" program, cutting across national and county governments. Is government PFM on track? Now, in relation to PST, technology is nothing without systems driven by processes. The alternative is what is known in the parlance as "computerizing a mess" (the "garbage in, garbage out" analogy). That systems development accounts for almost four out of 10 shillings in a 16-year-old reform program suggests that the process work isn't quite complete, which further suggests that government workflows are still not streamlined. To put it kindly, if processes and systems are out of shape, policy and strategy have no chance. To get a better view, here is a quick snapshot of ongoing PFMR systems work, some of which may be complete (there is no published reporting of progress, so now might be the time). This gets a bit boring, but it is also where the rubber meets the road, after the "big announcements". On the theme of "aggregate fiscal management, public investment, planning and budgeting", 17 per cent of the systems development budget (Sh785 million) is devoted to more in the endless cycle of fixes to IFMIS, while simultaneously aligning the same IFMIS with other systems (CBK internet banking, debt management, work planning, human resources/payroll, projects, government assets and state corporations) plus new service delivery reporting, and public portal access to data on budget spend and the same services. On the theme of "financial management and procurement", 46 per cent of the systems development budget (Sh2.1 billion) is targeted at getting IFMIS to do proper procurement, contract and cash management, as well as commitments and pending bills monitoring (and reporting), standardizing financial reporting, including payroll and projects, and links with e-citizen. TSA (Treasury Single Account) is still in the plan. The theme of "external audit and oversight" took up 5 per cent of the systems budget (Sh217 million) for audit systems. On "revenue generation and inter-governmentals", its 13 per cent (Sh609 million) includes allocations for KRA systems, an "integrated devolution data portal" and another "integrated county revenue management system". On "human resources and payroll", its 15 per cent share (Sh705 million) covers the illogical idea that government has had two HR systems - GHRIS and IPPD - for at least a decade). The remaining 4 per cent of the systems development budget (Sh202 million) goes into coordination. In these last 250 words you find the systems development part of Kenya's current PFMR. We might not be able to see what went into, or is going into, "design and implementation" or "capacity building", but on "systems development" the case should be clear. This is the time to establish the truth and nothing but. But here is the larger point. At what point does "systems development" become "systems operation" if we are forever making major adjustments (these are not simple tweaks like creating new reports) because the integration never seems to end? When will these systems finally get to be reasonably "fit for purpose"? If there's anything the Kenya Kwanza administration must focus on in order to get its policy promises to work, it must begin with PFM (public finance management) reform. And it can't be another rush to systems and technology if processes are off-balance! I suspect the visiting IMF mission might be more politely coming to the same conclusion. Mostly for the President and his team, is there a chance here to use this final year of the current PFMR strategy to accelerate progress or do a rethink while getting the next one up and running? Food for thought. -Kabaara is a management consultant

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