As the country walks a narrow path owing to prevailing hard economic times, the new government has scraped for revenues from all corners to implement its ambitious programme of growing the economy from the bottom.
However, save for the austerity measures that were put in place by the government of Uhuru Kenyatta, including a far-reaching programme with the International Monetary Fund (IMF), the government of President William Ruto is yet to announce any new measures to cut spending and improve tax collection.
Part of this is because it is barely three months since the Kenya Kwanza government took over and its cabinet has been in place for just over a week.
President Ruto said his intention was to cut wastage, including directing the National Treasury to reduce the country’s total spending by Sh300 billion.
“Next year, we will bring it further down so that, by the third year, we have a recurrent budget surplus,” said Ruto when opening the 13th Parliament.
Although Ruto is concerned with overborrowing, his administration has not announced any austerity measures to reduce the country’s appetite for loans, especially expensive ones. Although President Ruto is obsessed with increasing revenue by going after eligible taxpayers as well as pushing up pension contributions to increase investments, experts note that the biggest problem is spending.
John Mutua, a programme coordinator at the Institute of Economic Affairs Kenya, a think-tank, would like the government’s spending rationalised by instituting austerity measures that will cut back on non-core spending.
The President, experts agree, has accurately diagnosed the country’s problem of low savings that makes it difficult for it to invest. The country is increasingly relying on loans to build critical infrastructures such as roads, dams, airports and power stations.
This year alone, the president noted, the country is expected to borrow Sh900 billion to finance development and recurrent expenditure.
“The government should never borrow to finance recurrent expenditure. This is not right, prudent or sustainable, it is simply wrong. We must bring ourselves back to sanity,” said Ruto.
Besides pushing for increased monthly contributions to the National Social Security Fund (NSSF), Ruto also wants everyone, including the hustlers who eke out a living in the informal sector where the pay is low and erratic, to pay taxes.
Meanwhile, although the country is still grappling with a high wage bill, Public Service CS Aisha Jumwa has promised to increase salaries for the 900,000 civil servants in 100 days.
“Civil servants are a demoralised lot. They are unable to cope with the high cost of living occasioned by runaway inflation. As the Kenya Kwanza government, we want to revamp their morale by increasing their salaries as soon as possible,” said Jumwa.
Last year, immediate former National Treasury CS Ukur Yatani set himself up for a major fight with the trade unions after he refused to approve a Sh83 billion wage increase for various collective bargaining agreements. The trade unionists are now baying for his blood.
A ballooning wage bill has long been a source of profligacy.
Ambassador Yatani in an interview with The Standard noted how in the last financial year the government had been able to reduce its budget deficit, the difference between total spending and revenues collected, from 8.3 per cent of gross domestic product (GDP) to 6.3 per cent as the Kenya Revenue Authority collected more and spending was cut.
He attributed this achievement to a programme the government has with the IMF aimed at reducing the country’s debt vulnerabilities.
CBK governor Dr Patrick Njoroge touched on the programme last week.
“We do have a programme with the IMF, and there was a certain financing need programmed in (it),” Njoroge said while acknowledging the impact of the multipronged economic crisis on the country.
“The financing need has increased. We need to see how that gap can be filled within the programme, and those are options we are discussing with the IMF.”
A team from the Bretton Wood Institution is expected to meet officials from the National Treasury and the Central Bank later this month.
It is expected to prescribe another round of tax, governance and monetary policy reforms as part of its ongoing debt negotiations with the government. This has stoked fears of a return to painful measures that have resulted in civil servants losing their jobs and increased taxes.
The new government of President Ruto has said it is ready to take the IMF’s bitter prescription to get the battered economy back on track.
To avoid borrowing, the new government, just like the previous one, envisaged a Public-Private-Partnership funding framework for large capital projects.
“In order to achieve our target of raising access to water from the current 60 per cent to 80 per cent, Sh500 billion is required.
The government can provide this gradually, but the private sector can mobilise it all at once. We will thus adopt a PPP framework by entering into water purchase agreements with investors. This way, we will achieve water for all in less than a decade,” said Ruto.