Innovate to clear piling national debt

When you blame the International Monetary Fund (IMF) for the fuel crisis we are experiencing today, you are engaging in scapegoating.

Gone are the days when the government used to live within its means. FILE PHOTO | NMG 
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When you blame the International Monetary Fund (IMF) for the fuel crisis we are experiencing today, you are engaging in scapegoating.

For the IMF does not just pop in town and out of the blue starts dictating to you that you must introduce a 16 per cent tax on value added tax (VAT). It is invited by the government.

We are the ones who approached the Fund to put together for us a precautionary finance facility to cover us against external shocks. The IMF is neither an angel nor a philanthropist. Indeed, many scholars and researchers have made academic careers out of studying the negative impacts of IMF’s bitter pill.

While at university, we all enjoyed reading Susan George’s books- ‘‘How the other half dies’’ and ‘‘Fate Worse than debt’’.

It is through the pioneering works of people lie Susan George and Michael Barret Brown that most students came to terms with the fact that Africa was paying more in debt service to the World Bank and the IMF than it was receiving in aid flows into the continent.

But when we blame the IMF for the current fuel crisis, we are merely engaging in populism.

And as we target the IMF for blame for the ongoing fuel crisis, the rhetoric merely impedes the search for permanent solutions to our serious economic problems.

Indeed, the IMF is but an alibi for governmental evasion of responsibility.

The controversy about the 16 per cent VAT impost and the situation we find ourselves in right now, is a reflection of the parlous state of government finances.

As the queues at petrol stations get longer, and with the populist rhetoric from the political class expected to grow louder, President Uhuru Kenyatta may capitulate to public pressure and remove the controversial task.

If that happens, the implication is that we are going to end up with a budget deficit much larger than anticipated in this year’s budget.

There will be gaps that will be filled by resorting to printing money and other forms of inflationary financing.

We forget that this is an economy facing too many risks and that neither can take too much pressure or run a marathon. Ours is a highly indebted economy with a sizeable domestic debt, that has in a very short period accumulated a large stock external debts, most of it expensive commercial debts in the context of stagnating domestic revenues.

Basically, we are a low income primary goods exporting economy that is exposed to large fluctuations in terms of trade and therefore extremely vulnerable to volatility of the exchange rate.

How I wish that these loud politicians making noise about the 16 per cent VAT impost can approach the issue of poor government finances with the same zeal.

The government is in the habit of thumping its chest and touting how it has pursued policies that have achieved relative macro-economic stability. But the reality is that economic fundamentals remain unhealthy. Take corporate profits for instance.

Even official statistics will show you that profits of blue chip companies have stagnated.

Until corporate profitability levels return to where they were in 2013, until we start seeing a major spike in private sector investment – in take up of credit by the private sector- and new investment by the private sector- there will be no escape from the sluggish growth we are witnessing.

It is time the government started doing something new and differently about the mounting debts in its books.Without innovative approaches, these debts will be in our books for many years and will have to be paid for by generations who were not yet born when the loans were contracted.

Gone are the days when the government used to live within its means. Since the late 1990s the country has been living on its capital- and a deficit on the revenue account has become a regular feature of our budget.

These expensive commercial debts we have accumulated will continue to rest upon the productive energies of this economy for many years. The controversial fuel tax may go, but the economic pain won’t.

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