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Henry Rotich: A man under siege

By Paul Wafula | October 19th 2015
By Paul Wafula | October 19th 2015
Treasury Cabinet Secretary Henry Rotich

The Treasury Sunday sought to assure Kenyans it is not cash-strapped, even with Cabinet Secretary Henry Rotich being a man under siege; with falling tax collections and increasing financial demands from governors, contractors and State parastatals.

On the back of concerns about the health of the public purse, the Treasury gave a breakdown of exchequer disbursements from July 1 to October 16, totalling Sh208 billion, explaining that the Government “continues to meet its financial obligations,” according to a statement by the principal secretary published in local dailies.

But despite the assurances by Treasury, Mr Rotich will for the second time face the Budget and Appropriations Committee this week to explain the state of the economy, especially with regard to cash flow problems that have hit Parliament, counties and ministries, among others.

With interest rates at an all time high, teachers baying for his blood due to delayed salaries, and as companies at the Nairobi Stock Exchange lose Sh530 billion in their value in seven months, taking a direct hit from the turbulence in the economy, Rotich is facing a new headache.

Contractors and suppliers who have supplied goods and services to the Government are still waiting for cheques, six months down the line. This has a spiral effect on the economy given that these contractors now have their money tied up.

Public debt

Secondly, they are likely to stop supplying the State and this is likely to hurt service delivery in the short term.

“Demand is completely depressed and everybody is sitting on stocks because nobody is ready to sell their goods on credit or extend their credit beyond the limits they have already done,” says the Kenya Private Sector Alliance Chair Polycarp Igathe.

A strengthening dollar in the global market, and the excessive spending at home as Government funds infrastructure projects, has put the Kenyan shilling under stress, depreciating to Sh102 against the dollar from Sh85.

This has seen the prices of imports grow by at least 20 per cent on currency losses alone. Kenya is a net oil importer and a weak currency has a direct impact on the cost of living, given that these currency losses are transferred to the consumer.

But it is the servicing of the growing public debt that is the biggest headache for Rotich, given that he has to balance between prompt repayments and meeting other pressing needs.

Defaulting in repayment will limit the country’s ability to borrow from the international market and this will compound the trouble at home.

Nearly half of the revenue billions that the taxman collected in the first quarter of the current financial year was spent on payment of debts.

The Government has already borrowed Sh100 billion from the local market since July and it is projected that it will have borrowed Sh600 billion by next year June.

Rotich told legislators last week, when he appeared to explain the current cash flow problems, that the Government needs to take an additional Sh78 billion-syndicated loan from banks in the next two weeks to ease the cash crunch in the short term.

This is set to push the debt higher.

The Central Bank of Kenya has already warned Treasury of excessive borrowing to fund recurrent expenditure

President Uhuru Kenyatta’s government has borrowed more in three years than what former President Mwai Kibaki did in his last five years in office, as government debt soars to about 50 per cent of the GDP.

A Parliamentary Budget Office report confirmed this after it blamed the cash crunch on the move by the Treasury to clear Government debts that are up for maturity.

Only six per cent of the development budget has been released to the ministries, with the ministries of Interior, Labour and Education having gotten nothing yet for their development programmes in the first quarter.

Counties’ crisis

At least 25 per cent of the development budget should be disbursed by the lapse of the first quarter.

Services in the 47 counties are grinding to a halt as Treasury and county governments read from a different script. Counties have insisted that they are yet to receive any money for development and are only paying salaries and operating on overdrafts to survive.

Parliament is also baying for his blood following delays in disbursements. Rotich has also been summoned to meet the Senate to explain the delays in sending money to the counties. He is expected to have found the money to give the counties before the meeting takes place.

Last month’s rise in the cost of living has further compounded his headache. Inflation for September rose slightly to stand at 5.97 per cent from 5.84 per cent in August.

This rise came in the same month that the economic growth slowed to 5.5 per cent in the second quarter, taking a beating from manufacturing, construction and financial services that weakened.

The GDP had expanded by 6 per cent year-on-year.

The slowdown in the economic growth is not helping the CS’s case given that without growth, it is impossible to collect the taxes necessary to fund ambitious projects.

The sorry state of affairs has seen both the World Bank and the International Monetary Fund revise their growth forecasts for the country downwards.

In a hard-hitting report titled ‘Storm Clouds Gathering’ released last week, the World Bank warned against the current unsustainable infrastructural spending, which it says presents potential risk to growth.

The Bretton Woods institution also decries a volatile foreign exchange and monetary policy, lack of a proper and adequate legal and constitutional mechanism for counties to manage finances and the lack of public participation as key hurdles stifling growth.

It’s against these worries that the bank revised down its growth forecast.

It now projects Kenya’s economy to grow by 5.4 per cent in 2015 and 5.7 per cent in 2016, down from the bank’s earlier projection of six per cent and 6.6 per cent.

The bank lists volatility of the shilling and high interest rates as key hurdle.

It also flagged Kenya’s heavy spending as unsustainable and a risk to growth ambitions owing to the high fiscal deficit.

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