EDITORIAL: State must ensure Kenyans’ interests always come first

What you need to know:

Kenya has recently been engulfed by a major economic crisis following the introduction of a 16 per cent levy on petroleum products in defiance of a parliamentary vote delaying the tax for two years.
A 16 per cent levy on petroleum product undermines Kenya’s quest to become a least cost producer of goods in order to attract investors and generate jobs.

As the Treasury awaits final word from the International Monetary Fund (IMF) on the Sh152 billion stand-by credit arrangement, it will be prudent for Kenyan authorities to first look at the interest of citizens.

Kenya has recently been engulfed by a major economic crisis following the introduction of a 16 per cent levy on petroleum products in defiance of a parliamentary vote delaying the tax for two years.

The IMF had pegged extension of the stand-by credit facility, used for balance of payments support, on a number of measures, including repeal of a cap on commercial lending rates that came into force in 2016. MPs have also voted to retain the legal caps on bank rates, which the IMF wanted scrapped or modified in return for a new standby arrangement.

In essence, imposition of the new petrol tax poses the danger of disrupting the economy in a major fashion. Yet not levying it also exposes the country to a major debt servicing risk arising from the heavy loan obligations that abound.

The essence of it all is that Kenya invited this crisis upon itself with the recent borrowing binge and cannot hope to blame external interlocutors such as the IMF whose sole interest is ensuring the long-term health of Kenya’s public finances to avoid a Greek-type of crisis in the future.

The reality is that imposing the petrol tax has immense negative ramifications on the economy. It bears the prospect of raising the cost of transportation and that of running machines in industries, forcing goods and service providers to raise prices to cover additional cost of doing business.

Besides, this tax undermines Kenya’s quest to become a least cost producer of goods in order to attract investors and generate jobs.

The fact, however, is that a blind approach to the issue in the fashion that the MPs did offers no solution to the problem. Suspending the tax amounts to offering too simplistic a solution to a deep and complex economic problem.

What is needed is a review of the Sh3 trillion budget and the removal of non-essential expenditure in order to provide the necessary fiscal space to maintain the status quo.

Only then will the legislators make a meaningful contribution to resolving the huge debt problem they have partly caused by passing successive bloated budgets that included heavy borrowing in recent years without thinking of the country’s ability to pay.