Cash crunch was anticipated: To ride out, political goodwill is key

In my debut article for The Saturday Standard back in 2018, I wrote about the universality of economic rules and the inability of anyone to cheat around them. It seems the 'chickens have finally come home to roost' for the government sooner that I could have imagined then. The revenue crisis the government is experiencing was long coming for anyone who cared to track official data. This is largely attributable to the defective debt driven 'Big push' project development model. It is without a doubt that vendors with patronage from high echelons of power took advantage of financial engineering to plunder our public coffers. The passwords in their scheme of things were the novel innovations of Project Financing and Public Private Partnerships (PPPs). Like Pontius Pilate in the crucifixion story of Jesus, this column washes its hands for it never shied away from warning on the looming danger to the local economy. For the country to find stability from the ongoing cash crisis, the Hustlers administration must wake-up from their sense of invincibility for a candid and honest discourse on workable solutions. There is no question that the Hustler leaders have been gifted with the power of the gab that endeared them to the masses to win the presidency. But my honest advice if they care to listen is that this same power cannot be used to solve the complex economic challenges that the country is facing. Take for instance these three scenes: one, the government would soon be able to import petro and petroleum products using Kenya Shillings in order to ease the pressure on the Shilling to below Sh120 to the US dollar in months. One cannot avoid wondering whether this administration is implying that they can bypass the internationally acceptable mediums of exchange. While it is true the Global Financial System today offers innovative products to underwrite and hedge international transactions, such are complex deals that dwarf our local political rhetoric. The reason we are in this debt mess is partly because of signing complex financial contracts without either understanding or carefully weighing their long term impact to the country. Navigating the complex world of global finance and geo-economic politics is not a chick and mouse game. Two was the gaffe from the Cabinet Secretary of Agriculture that the government would soon reduce the price of 'Unga' by contracting farmers in Zambia to grow maize in four months. This has since been disowned by Zambia's Minister of Finance. This policy pronouncement is not only confounding but also weirdly contradictory. The anchor fertiliser subsidy of the Hustler administration has been billed as the single magic bullet that will sort the cost of living for the suffering masses. Tracing facts, weeks ago we were told the infamous Galana-Kulalu irrigation scheme would put millions of bags of maize into our strategic reserves in six months. Besides, it takes only 75 days to grow maize in my backyard of Lower Eastern and the bulk of the arable Semi-Arid land across the country. What economic sense does it then make going to contract farmers in a foreign land to grow for us maize in four months and them import it to the country? Three is the tragedy of top bureaucrats and political leaders declaring to the nation and world that the government is broke. How on earth can men holding such strategic leadership positions fail to comprehend how their sentiments compound an already limping economy to its tipping point? National leaders have a solemn obligation to inspire confidence to the markets and consumers both domestic and foreign. It is without a doubt that the path to a sense of normalcy will be stiff, but it is not impossible. Two simple, but profound ideas by Morgan Housel in his book 'The Psychology of Money' can help us contextualise the journey ahead. One is that 'Nothing is as good or as bad as it seems'; and two is that sometimes you don't need tremendous force to create tremendous results. While the issues before us as a country appear complex and challenging, there are five action points that can bring relief in the short run and offer a sustainable path to full recovery. The first are lessons learned from economic history since the great depression in the 1930s through the 2007/08 global financial crisis and recently, the Covid-19 pandemic. These are the economic prescriptions by John Maynard Keynes to utilise government spending, tax cuts and monetary expansion to respond to depressions. Unfortunately, the KK administration has taken the exact opposite of Keynes propositions. Instead of targeted spending to spar local businesses and tax cuts to lower cost of energy and doing business, they have implemented austerity measures that starve local businesses; failed to prioritise payment pending bills; bulldozed increase in NSSF levies for employers; and let loose cost of energy and petroleum products. How do you starve your cow and expect more milk from it? The second intervention is to tame waste across government. While they whine on how they inherited empty coffers and warn others to tighten their belts, the administration's top brass is living on the fast-lane on tax-payers bill. Available evidence is that the presidency blew its entire annual budget in six months and has earmarked Sh1 billion for new cars in the next budget. As its economic advisor mocks the masses for raising the flag on appointment of 50 Chief Administrative Secretaries, he suggests potential retrechment of the lowly paid civil servants. He also ignores the fact that the public wage bill grew from Sh588 billion in 2017 to Sh.760 billion in 2021/22 as per the 2022 Economic Survey. Mindset shift required Third is to face the dragons that pushed the country into this trap head on. The abuse of project financing and PPPs by politically connected vendors to mortgage inter-generational taxes with no concomitant benefits to the domestic economy has finally reared its ugly face for us to witness. I have previously written strongly on the futility of our vendor driven-foreign debt-foreign contractor-foreign supplies model of doing projects. This approach has no transmutal impact to the domestic economy either through creation of employment or increase in business activity that can translate to more tax for government. All that is left is a debt voucher and under-utilised pieces of infrastructure. The fourth point is on the urgent need to start shifting the economy from leaning heavily informal to the modern side. Part of the reason that I strongly believe things are not as bad as they look is because of the structure of the economy. As per the official statistics, of the 18.3 million jobs reported under the 2022 economic survey, only 2.9 million are formal. This data excludes millions more classified as small-holder farming and pastoralists' economic activities. The obvious implication of this is that while the government struggles to collect enough taxes, billions of shillings are still exchanged daily outside the mainstream financial systems and trading channels. It thus becomes administratively not feasible to assess or collect taxes from the informal sector. As per the emerging data, attempts to tax these folks through M-pesa and bank transactions have only pushed them to shun these payment platforms. I have just seen data that volume and value of transactions reduced in this last quarter on increased levies. The filth and final intervention would be the most difficult to swallow though inevitable if the administration is to salvage itself from the self-destruct path they are currently in. The mess the country finds itself in did not happen in a vacuum. It was created by acts of commission or omission within Treasury's bureacratic establishment. Seven months is a long time to figure out a workable and believable economic philosophy. As expected, the bottom-up thing has proved to be a whirl-wind where it matters most. But this is not without evidence. The mortal limitation of bottom-up economics is its lack of scalability. If anybody had doubts on this then a good case study would be this administration's pet project of the Hustler Fund. As I predicted right from the onset, it is good politics, but bad economics. However, the clock of time will eventually prove this as true or a false.

Cash crunch was anticipated: To ride out, political goodwill is key

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Cash crunch was anticipated: To ride out, political goodwill is key

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