Time to come clean on the state of Kenya’s public finances

We currently have a serious case of the common pool problem as far as the management of our public finances are concerned. Different departments within the national government operate wastefully without centralised supervision. The county governments are dens of corruption, with even mid-level staff now claiming allowances far greater than their official salaries. If we do not staunch the haemorrhaging of public resources we risk serious fiscal troubles in the near future. But because of the nature of common pool problems, it is not a guarantee that the elite will fix the situation before it is too late.

Let me explain why. An example of a classic common pool problem in economics is one in which different fishermen try to extract fish from a lake. The resource (fish) is only sustainable if each fisherman extracts only a reasonable amount of fish and allow for the resource to naturally replenish itself. Under these circumstances, the effect of excessive fishing by a single fisherman may be unnoticeable. Without any system of sanctions against overfishing, individual fishermen will be incentivised to overfish, at the margins. This may not be harmful if only a handful of fishermen do it. But the combined overfishing of all the fishermen produces a bad result – a permanent depletion of the natural resource.

In the case of our public finances, the consolidated fund is the fish resource. Government departments and agencies are the fishermen. Each unit has the incentive to draw as much as it can from the common resource. The only ones incentivised to keep a tab on how the common resource is utilised is the Treasury. The Cabinet Secretary sets the upper limit of government expenditures each year. He is supposed to balance the competing interests against the need to live within our means.

However, this does not appear to be happening in the current situation. Notice that instead of reining in expenditures and radically rationalising the budget the government has opted to borrow money – at steep interest rates. Excessive domestic borrowing will increase the cost of borrowing for the private sector. It will also crowd out private investment as banks run to lend money to the government, a much safer debtor than the private sector. This will obviously have the knock on effect of reducing the rate of investment and growth. The current behaviour of the Treasury also suggests that the CS and his team are not completely on top of things, and are rather playing the game of putting out fires instead of preventing them from starting in the first place.

The Treasury’s apparent lack of control has taken us to a place where international news organisations go to the International Monetary Fund’s resident representative, Armando Morales, to obtain news about the state of our economy and public finances. This should not be happening in a country with an economy the size of ours. As I keep saying, because of our very ambitious development agenda, we are now in the big leagues. And being in the big leagues demands some sanity and sense of purpose. The government cannot continue to be run like a jua kali enterprise. We cannot continue burying our heads in the sand as billions of shillings go to waste through corruption in national and county governments.

Again, we are borrowing money at very steep interest rates. The least we could do under the circumstances is ensure that that money is put to good use. On this score the buck stops with the Treasury Cabinet Secretary, Henry Rotich; and the head of the Parliamentary Budget Committee, Mutava Musyimi. Let us not disperse the blame or responsibility. These are the two men that were put in positions to manage our public finances. And they have failed. The problem with our political culture is that we tend to avoid focusing on the specific people that fail us as a nation. It is one thing to write about rampant corruption in the counties. But it is another to pinpoint the real failure points. In the current situation, the people who have failed us are the gatekeepers. MCAs have an incentive to “overfish” from the common pool. The same applies with different central and county government agencies.

It is therefore incumbent upon the gatekeepers to device mechanisms to prevent this from happening. And the two top gatekeepers are Messrs Rotich and Musyimi. If we wait for morally upright politicians and public servants before we change anything, then we are going to wait forever. What we need to do is directly address our problem by ensuring that the gatekeepers are doing their job. For starters, Mr Rotich should level with the Kenyan people about the state of our public finances.