There’s urgent need to resuscitate economy

Last week’s confirmation by the government that the economy is in bad shape was bold, albeit late. For several years now there has been recognition by several quarters of the country about the challenging status of the Kenya economy. However, like the proverbial ostrich, denial has been the standard response from Government. This past week though, in two separate events, there was a complete departure from this approach.

First, President Uhuru Kenyatta in his State of the Nation address admitted that the economy required urgent measures to resuscitate it. He outlined several measures, including injecting resources to the sectors of coffee, tea, milk and potatoes. He committed to put money into the pockets of Kenyans, a bold admission that Kenyans pockets were empty and consequently hampering their purchasing and survival power.

Secondly, following his confirmation to the position of Treasury Cabinet Secretary, Ukur Yatani committed to continue with austerity measures within Government so as to cut down on unnecessary spending and importantly stabilize the Kenyan economy,

He was categorical that Kenya must cut its clothe according to its size and consequently live within its means.

Living within one’s means is a basic concept in life. It applies to everybody, from individuals, households to corporations and states. When one fails to adhere to this rule they soon choke under the weight of debt or as a result of inability to meet their priorities.

The austerity measures introduced in late 2019 by the Cabinet Secretary are a useful first step in balancing the books. However, there is more that needs to be done.

One of the first steps must be to recognize that increased taxation will not solve the budget deficit that the country has. In a depressed economy that is Kenya currently, the citizens are already over-burdened with tax. Saddling them with additional taxation measures, whether in the form of turnover tax for small and medium size business or the initial ill-advised housing levy only sends the wrong message.

The analogy of the Kenya economy as a milk cow would be apt to demonstrate the fallacy of this approach. If you have a cow you rely on for milk. During drought the trick is not to buy more cows, but to look for feed to take care of the cow you have till the drought situation improves. Now is the time for incentives and not additional taxation.

Government should consider expanding the stimulus packages the President gave to four sectors to several more sectors to revive them and ensure that they can be ore productive. In addition, there should be greater attention to increasing the circulation of money in the economy. It is only such measures that will ensure that citizens have money in their pockets.

We need to learn from the Economic Recovery Strategy by the NARC Government between 2003-2007. When money flows and the economy improves, there will be increased tax collection by the Kenna Revenue Economy enabling government to fund its operations.

Second, is the debt burden. It is gratifying that Mr Yatani recognizes that the debt situation is worrying. While the country’s borrowing limits were increased by Parliament lats year, the reality is that we are already struggling to repay what we owe. In fact, the borrowing spree that Government undertook over the last six years or so is a great contributor to our current financial troubles. Consequently, priority intervention to stabilize the economy must be to brick our borrowing appetitive to check.

A comprehensive review of the loans we owe and action on how to stagger, renegotiate, repay or otherwise reduce their burden on the economy should be a greater priority than seeking fresh loans which will only compound our burden.

There were reports of counties that did not spend money on development during the last three months. How this can be possible when there are robust measures in place on financial expenditure including constitutional oversight by the Controller of Budget, is baffling.

Unless we adhere to the rule of spending at least 30 percent of our budget on development activities, we will not improve the economy. This area of budget expenditure oversight should be a new year resolution for the newly appointed Controller of Budget.

Lastly, the Treasury must prioritize planning so that we move away from the current trend of reactive decisions. It is dangerous and counterproductive to make decisions on the sour of the moment without dedicated focus on planning.