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Ideas & Debate

Avoid fiscal castles in the air in growth push

Big idea.
Big idea. FILE PHOTO | NMG 

This has been a pretty bullish week. On Tuesday, President Uhuru Kenyatta laid out a six-point agenda for 2020 driven by his view that we’ve spent too much time in our post-Independence history pursuing the political, not economic, kingdom. Sorry, Kwame Nkrumah, this is the 21st century.

To be fair, in what sounded like a hurriedly-assembled (and infinitely more interesting than usual) speech, he didn’t negate the importance of politics; instead offering that politics must be used as a means to an end that will “shift the economy…address the plight of vulnerable members of society…better the livelihoods of Kenyans”. Like the “Big Four”, we could have started here in 2013.

The six-point agenda is a masterpiece in “eclectic” thinking. More money in the pockets of Kenyans. More money in the pockets of farmers (coffee and tea; not sugar and maize?). Better returns for producers of milk, potatoes, rice, bananas…and entertainment. Support to Kenyans afflicted by natural disasters and unexplained phenomena like floods, locusts…and the new NHIF regulations.

A call to the Judiciary to convict the corrupt, and a direction to the National Intelligence Service to “review” all cartel groupings that rig public finances and private markets. Finally, an exhortation towards a national political consensus for prosperity; or more simply, the Building Bridges Initiative.

Plenty of public reaction was positive; not necessarily on the basis of the Judiciary-style “practice directions” President Kenyatta offered, but more as a sign of relief that the national leadership had spoken; especially given Kenya’s increasingly animated political climate.

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For those who question how these directions will be funded, it is likely that many already exist in official policy and programmes. By leaving the juicy details about changes to his administration to the end of his address, the President played a remarkable piece of political sleight of hand.

The following day, the Treasury leadership team added to the “happy clappy” moment during the launch of the 2020 Sector Hearings on Kenya’s 2020/21 budget which end today. Priority will be accorded to projects and programmes that offer high social and economic returns. Sectors with a high “multiplier effect” are the new kid on the block; the Big Four remains; and austerity stays.

“Expensive and unfriendly” unconditional external commercial loans will be replaced with conditional concessional borrowing. Tax exemptions will be slashed. For those familiar with the game – away with those Vikings of debt and snorting dragons of corruption, this kingdom will have a castle.

Optimism is never a bad thing, yet one wonders if the “top-down” part of government gets with the “bottom-up” one that Francis Fukuyama recently (and controversially) wrote about in the Wall Street Journal as the “deep state” (of professional public servants) that “safeguards” the constitution or, rather, the State. Let’s consider this in the context of those 2020 Sector Hearings.

I have previously observed that, despite “top-down” direction to sectors through the Budget Review and Outlook Paper (BROP) on an overall resource envelope (budget ceiling) of Sh1.86 trillion, the “bottom-up” sectors still deemed it fit to place resource bids totalling Sh2.89 trillion. I have already canvassed the point about speculative budgeting or is it budget impunity by the “deep State”? Let’s examine another angle, given Government’s self-proclaimed “zero-based budgeting”.

The Treasury has stated that “new projects will be scrutinised before being funded…to curb wastage. This sounds just as weird as asking NIS to “review” cartels. Let’s throw in some project numbers, gleaned from the 2,273 pages of 2020 sector reports that guided these hearings. In the project review part of these reports, we find a 2016/17-2018/19 portfolio of 2,126 projects, of which only 493 were complete by June 30, 2019.

Total project value? Sh8.2 trillion, which is roughly where GDP currently stands. Number of projects going into the 2020/21-2022/23 MTEF period? 1,633, before new projects.

Between Education, Energy, Transport, Infrastructure and Water/Environment, we’re talking more than 1,000 projects.

That’s the bottom-up perspective that somehow doesn’t flow into top-down direction. How did we get here? We watched in silence as the Treasury endlessly encouraged a project approach outside programme-based budgeting and service delivery imperatives. Now everyone wants a project, and everybody has a project. It’s more fun than service.

Ironically, the Public Administration and International Relations (PAIR) sector in which both the Presidency and Treasury reside is the only sector (other than National Security) that didn’t bother to disclose its project portfolio. Sounds like a “do what we say, not what we do” Treasury.

I highlight projects for a couple of reasons. An obsession with projects builds an unsustainable fiscal castle that diverts focus from daily service delivery, encourages procurement malfeasance and, invariably, adds to our debt burden through borrowing.

In short, three things that the real journey to an economic kingdom must address. Until the top-down reconciles its thinking with “on the ground bottom-up” stuff, we’re left with “happy clappy” speeches and “bull…”.

Oh, and maybe NIS could start by reviewing this project portfolio, rather than cartels and “ghosts”.

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