With tyranny of numbers, Kenya Kwanza can only offer painful menu

President William Ruto speaks during a rally in Chogoria on July 13, 2023. [Phares Mutembei, Standard]

Kenya is a great country.  I love it totally. In an earlier life, a very smart Treasury advisor once told me that we are premier league footballers playing Sunday league football. 

A current, equally smart, advisor to government offered the insight that Kenyans don’t want development, we want services.  Between these advisories, we have the difference between the economy and the budget.

This thinking can be extended to the idea – offered before – that government’s catalytic role in our progress is as much about policy to drive the economy as it is about the budget which taxes us.

If, to extend the argument, the Kenya Private Sector Alliance (KEPSA) estimates that the economy loses Sh3 billion for every “maandamano” day, then one logical view might be that the Sh211 billion – Sh579 million a day – 2023 Finance Act is probably not worth the trouble, right?  Unless the potential tax take from Sh3 billion is, say, Sh150 million at a net of five per cent after costs.  At this basic level, it is sensible to curb “maandamano”, but it also suggests the Act is rather predatory.

Especially in very quick comparison to the Sh50 billion 2022 and Sh8 billion 2021 Finance Acts.

Welcome to Kenya Kwanza’s tyranny of numbers.  Let’s do “maandamano” numbers slowly.  At a top-end GDP of around Sh14.5 trillion, today’s Kenya is a Sh40 billion a day economy. Nairobi is a quarter of the economy, so a complete daily shutdown of our capital could cost us up to Sh10 billion, or at our imagined five per cent, Sh500 million in daily lost taxes from business as usual.

If all of political Mount Kenya – up to Nakuru - closed down, we have another Sh10 billion lost.  We get the same number by closing down all of Nyanza, Western and the Coast.  As we do with the rest of Kenya from the Rift to the North.  These are Kenya’s four quarters of the economic pie.

Sitting in Kenya Kwanza’s shoes, that’s the map to get while screaming economic sabotage.  Sitting in Azimio’s shoes, that’s the very same map on which economic disruption is designed.

Sadly, this is the zero-sum calculus that should inform how we move forward as we process and adjust to the idea that protests will now be a three-day affair every week, with weekends to rest.

Now, here comes bloated government and its budget.  It wants 20 per cent, not five per cent.  A quick annualization suggests that it demands almost three trillion from the economy, as the current budget estimates tell us.  It’s currently squeezing about two thirds of that out of our daily lives. 

Unfortunately, here is where it gets rather pear-shaped.  The current revenue take works out at about Sh5.5 billion a day.  The plan is to dramatically move this up to about Sh8 billion a day.

But, since only Sh579 million a day comes from the Finance Act, we might want to know where the other almost Sh2 billion a day, say Sh14-15 billion a week will come from.  This is where, “maandamano” aside, we move beyond legality of the Finance Act to the credibility of the budget.

Let’s remember here that we want to grow our economy.  The current Kenya Kwanza estimates point us to a Sh60 billion a day (Sh22 trillion) economy by 2027.  We really should be talking – as said before – about a Sh100 billion a day (Sh37 trillion) economy as our stretch target.

Additionally, the official Kenya Kwanza projection takes us to a revenue take of Sh11 billion a day in 2027.  It’s already painful before we get to spending.  Call this the elephant in the room,

It’s probably useful here to remember that the government is not the economy; or as Nobel Economics Laureate Paul Krugman famously put it in trade terms - “a country is not a company” (that’s a story for another day, but a quick point here is we grow on tradeables not non-tradeables).

So what does the spending plan tell us?  Well, the published number turns out at Sh10 billion a day (Sh12 billion if we include domestic and external debt repayments, rollovers and refinancing).

Let’s call that Sh70 billion a week against a targeted revenue take of Sh56 billion a week.  Except that the most recent revenue take works out at Sh39-40 billion a week. Rejoice, T-Bill and Bond investors; welcome to paradise at 16-20 per cent returns!  Forget Las Vegas, it’s casino time here.

We are keeping to the storyline.  Forget the Finance Act, what Kenya Kwanza has presented us with, through a pliable Parliament that hasn’t figured out its budget-making role, is a spend program of Sh70 billion a week (or Sh84 billion with debt repayment) and a revenue plan of Sh56 billion a week when the most recent performance says we extracted Sh40 billion a week last year.

If we stick with that deficit of Sh14 billion a week as “The Plan” we need to borrow for that, right?  And we need to borrow for “development”, correct?  Let’s take a peek into those numbers.

Here’s a new perspective.  Foreign money will offer us Sh11 billion a week before debt repayments running at almost Sh2 billion a week but less than half of the rest is earmarked for specific development projects and around 15 per cent is free grant money.  It isn’t rocket science to figure that a good proportion of borrowing is going into recurrent costs.  In crude terms, Kenya Kwanza’s “no borrowing” first budget borrows to pay salaries, workshop jamborees and overseas junkets.

Let’s put these numbers together.  Our Sh40 billion a day economy is effectively running a Sh12 billion a day budget on a revenue budget of Sh8 billion a day when our most recent performance was two thirds of that number.  So we will starve domestic activity by doing almost Sh30 billion a week at plus 16 per cent interest rates as we call on that weekly Sh11 billion in foreign savings.

Take a deep breath, and consider this picture as the painful menu that Kenya Kwanza now offers.

There is an alternative to this that our politicos will not contemplate.  It’s called cutting down the cost (if not size) of government. There’s a simple way to put this.  Kenya’s economy cannot afford our bloated government.  In betting on the budget against the economy, Kenya Kwanza’s tyranny of numbers sounds like it’s business as usual mode while promising economic transformation.

Of course, none of this will be the subject of continuing “maandamano”. This will not end well.