Ideas & Debate

Parliament owes Kenyans a sober look at Treasury’s budget promises

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The National Assembly chamber. MPs are expected to debate the Budget Policy Statement next week. PHOTO | FILE

Since its words seem to flow far better than its numbers, I have for some time been crafting an all-encompassing and suitably complex sentence that explains the perspective of the National Treasury – nowadays officially abbreviated as “TNT” - on the state of our economy.

My latest draft reads thus: “…this sunny outlook reflects our informed assessment of a benign macro-environment exhibiting manageable downside risks that permits a sanguine view of our growth prospects given the resilience of an economy underpinned by the most opportunistic private sector in the region”. That is pure dynamite!

For the person on the street, this translates simply as “viewed from planet Mars, we are doing great and are definitely getting better – so the future is bright and it is all good”.

That seems to be the backdrop informing the 2016 Budget Policy Statement (BPS). The BPS is government’s primary economic and fiscal/financial policy proclamation for the forthcoming year (in this case, 2016/17) and medium-term (2017/18–2018/19). 

So it is terribly disturbing that the Treasury “fulfilled” its public participation obligations under law by publicising the BPS in a press notice dated January 29, making it available on its website on Monday February 1 and inviting inputs by Wednesday February 3. 

Strategy

This is straight out of the Treasury’s “mini-skirt” toolkit for consultation – release documents in a way that gives just enough time to peak interest, but not nearly enough for detailed scrutiny.

So, what does BPS 2016 tell us?  The Treasury’s optimism slaps you in the face right on the cover page. Our budget theme for 2016 is “Sustaining Economic Prosperity for All Kenyans”. Outside of the “uber-rich”, 41 million other Kenyans are entitled to ask what “taxi rides” we are taking.

The bullishness extends to its early pages. Noting that global economic growth fell from 3.4 per cent in 2014 to an estimated 3.1 per cent in 2015, and Sub-Saharan growth declined from five per cent to an estimated 3.8 per cent, the Treasury estimates that the Kenyan economy grew at 5.6 per cent last year, up from 5.3 per cent in 2014 (effectively we grew by 6 per cent in the fourth quarter of 2015).

Ongoing infrastructure investment, falling oil prices for an import economy and less reliance than other African countries on demand from slowing China probably explain the hubris.

Six per cent growth is predicted for 2016, with 6.5 per cent being the medium-term projection. 

On paper, a falling current account deficit via lower oil prices (and probably, reduced pre-election import activity), constrained public spending (hence reduced interest rate pressure for added public borrowing) and within target inflation suggest the dream of a stable 2016 shilling.

On the fiscal front, the BPS does two things. First, it humbly cuts the Sh2 trillion 2015/16 spending estimates by Sh94 billion on the back of a revenue shortfall to December 2015 of Sh68 billion, which is itself expected to drop to Sh47 billion for the full year. 

Lower than projected income tax and (import) VAT collections, and delayed implementation of the Excise Duty Act explain this shortfall. 

Pay-As-You-Earn (PAYE) under-collections are a particular pointer to the weakness in the formal jobs market, and more likely, stuttering business activity, as the recent succession of profit warnings by Nairobi Securities Exchange-quoted firms separately and counterfactually confirms.

Second – and forgetting our “stable shilling” dream – the BPS “reverts to hype”. Peering with wild optimism into the pre-election year, the BPS ups its revenue collection target by Sh200 billion (15 per cent growth) to a mightily ambitious Sh1.5 trillion “underpinned by ongoing reforms in tax policy and revenue administration.” 

Overall spending will return to “plus Sh2 trillion” levels. Of the Sh1.7 trillion projected in discretionary spending (that is, spending other than constitutional obligations such as debt), over half will be directed towards the social sector (education, health and social protection) and capital investment (mainly energy, infrastructure and ICT).

Routinely uninspiring

All of this falls within the context of what TNT terms as the third year of Jubilee’s “Economic Transformation Agenda” (what is this – another ex-Vision 2030 strategy?) built around five pillars – an improved business environment for job creation; sectoral, and specifically agricultural, transformation; infrastructure investment; social sector strengthening and devolution.

Hold on a minute. Why does this all sound routinely uninspiring?  Because it is.  Year after year, we are presented with a BPS that mechanically sets out some sort of technical vision/agenda in words followed by a galaxy of big, fat numbers. 

It is almost as if we are humbly shy in our visioning, and ambitiously aggressive in our planning and budgeting (rather than the other way around).
Worse, it feels – subliminally, at least - as if the real economic progress that Kenya makes is in spite of, rather than because of, national economic and fiscal policy (official policy, that is).  Weekly media revelations around public corruption, waste and mismanagement do not help.

Now it is up to parliament, which returns from a two-month break this week. On February 15, the BPS will be presented to the National Assembly for debate (and ultimately, approval). 

So we must now turn to that 50-member “jolly jamboree” otherwise known as the Budget and Appropriations Committee (now reconstituted) to pursue a purposeful interrogation of the BPS.

Beyond testing for realism in the broad budget numbers – for which the Parliamentary Budget Office (PBO) will provide its usually excellent analysis and insights - here are three interrelated questions to which this committee could usefully apply its collective mind for taxpayer benefit.

Lest we forget, Jubilee is the first administration tasked with fully implementing a new constitution during its entire electoral term.

One, before approving another Sh2 trillion spending proposal, would it not be useful and helpful to understand how we have spent Sh5 trillion in the past three years (including current year estimates)? 

What have we bought? Let us call this the “national values and principles” question encapsulated in the Constitution. Broadly, let us find value for taxpayer money.

Two, what real progress have we made in using this Sh5 trillion in public resources to deliver on our Article 43 social and economic rights as obligated by the Constitution?  Simply, how has spending in the past three years actually transformed human lives?

Three, how are we doing on implementing the “theory of government” that the Constitution envisages? In short, how is devolution working for the people? Yes, we probably over-reached ourselves in setting a minimum resource allocation to county governments in the Constitution. 

But, more than five years into the implementation of the Constitution, we really need to ask hard questions about why we still continue with monster allocations to national government institutions that should really only be staffed by “policy wonks” as service delivery moves to our “growth enabling and delivering” counties (including Huduma Centres).

Step up to the plate

This isn’t about an audit, nor is it another “socio-economic audit of the constitution”. But it is about realising our constitutionally-demanded spending logic, particularly for a Jubilee administration whose

• 2013/14 accounts are “stuck” in the Public Accounts Committee

• (probably frightening) 2014/15 audit still hasn’t been published and

• 2015/16 efforts were full of ambition but are now retrenched by below-par tax collections.

That is the only way we get to an informed outlook that is sanguine about our true resilience. And figure the benign environment lacking a downside that must be opportunistically exploited.

Hopefully, this time, parliament – as our budget making institution - will step up to the plate.

Mr Kabaara is a management consultant , [email protected]