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Ideas & Debate

Forget the wage bill, address our tax gobbling Executive

Cabinet meeting at State House
A Cabinet meeting at State House, Nairobi. FILE PHOTO | NMG 

This year’s Budget Policy Statement (BPS 2020), released barely hours after the Medium-Term Expenditure Framework (MTEF) Sector Hearings concluded a fortnight ago, is dreamily themed “Unlocking Economic Potential by Harnessing the Big Four”.

My personal “post-constitution” personal elephant in the room – the cost of national government ministries, departments and agencies (MDAs) - rose from Sh1.863 trillion in last September’s Budget Review and Outlook Paper (BROP) to Sh1.864 trillion in the BPS.

This basically negated the need for sector bidding (total request Sh2.891 trillion) and the public participation central to the hearings. This year, the BPS doesn’t capture public views. As with the Building Bridges Initiative (BBI), our leaders prefer to talk at, not talk to, the people.

Most commentary on the BPS has been “rose-tinted”, inspired largely by recent optimism emanating from the National Treasury. Yet, what does and doesn’t BPS tell us? Here are a couple of thoughts.

Expected 2019 GDP growth of 5.6 percent, against 6.2 percent in 2018, is driven by services (now 60 percent of growth), even as the manufacturing part of industry struggles and agriculture ebbs and flows. Locusts notwithstanding, 6.1 percent is forecast for 2020, with a 7 percent target for 2021.

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Surprisingly, a slower growing 2019 economy generated our highest job growth ever, at 900,000. In context, annual jobs created during the 2003-2007 NARC regime averaged 500,000 (the same as Kanu’s last five years), grew to 650,000 during the 2008-2012 Grand Coalition, and 831,000 between 2013 and 2018. Even accepting our mainly informal job growth, what’s wrong with this picture?

In spite, or because of, BBI, the “Big Four” persists with promises to promote special economic zones, industrial parks, automotive product assembly, irrigation schemes, maize, rice and fish production, universal health care and housing development. The language is flowery, and familiar.

Then we have the Big Four “enablers”. Creating a conducive business environment, investing in infrastructure, sectoral and structural reform, and the Kenyan people, plus enhanced service delivery through devolution. This part appropriates lots of past BPS language, except it now sounds stale.

On the headline numbers, 2020/21 revenue is forecast at Sh2.133 trillion – Sh 50 billion more than current 2019/20 expectation. Ordinary revenue (including taxes) will be Sh1.857 trillion; a modest increase of Sh13 billion over 2019/20.

Allocating Sh580 billion for Consolidated fund services leaves Sh1.277 trillion to pay for a Sh1.864 trillion Executive, including development of Sh576 billion.

It is instructive that the cost of the Executive is now 100 percent of ordinary revenue. Add on a combined Judiciary and Parliament cost of Sh50 billion, and county allocation around Sh317 billion.

Excluding Appropriations in Aid (fees levied by MDAs - projected at 80 percent higher than actual 2017/18 outturn), as well as grants and debt refinancing, we close with an “ordinary” budget shortfall Sh50 billion short of a Sh1 trillion.

The actual fiscal deficit is projected at Sh569 billion; down from Sh657 billion in current 2019/20 and Sh715 billion estimated for 2018/19. About 56 percent of this deficit will be domestically financed, as against 54 percent foreign financing in current 2019/20. This familiar “we shall improve” narrative is now par for the course given our trying circumstances.

Yet, we have a missing storyline based on my “elephant”; a national executive budget that takes up all ordinary revenue before we pay for the Judiciary, Parliament and counties, and ignoring - for argument’s sake because these are first charges on the budget - debt service, public pensions and remuneration for all state officers from the Presidency to Cabinet, judges and MPs.

Add today’s fixation with a BBI process which, like the 2010 constitution, eschews reform of Kenya’s public expenditure space, especially nationally, because it’s easier to treat new ideas as “add-ons” to the status quo.

Let’s take a small step back into history.

When we torture national-level budget data since 2002/03 Kanu, including relative sector shares of spend, we’ve achieved two things. First, we’ve upped development as a proportion of the total from a low 20 percent to mid to high 30 percent. Second, we’ve doubled infrastructure (11 to 22 per cent) and water/environment (3 to 5 percent) and quadruped social protection (1 to 4 percent).

Here’s the interesting part. We’ve paid for these increases by slashing agriculture’s share by half, cutting health, security, justice, economic affairs (trade, tourism) and general public administration by a third and leaving education and national security at the same budget shares – total 35 percent - as they were in 2002. A big part of this change happened before the 2010 Constitution.

So today, with devolved agriculture, health and economic affairs more than replacing reductions at national level, we’re still reluctant to “rethink and rationalise” national government.

Forget the wage bill story, and consider BBI’s “shared prosperity” dilemma; how to pay for a “Big 4” that counties may accept as national policy, but haven’t internalised and domesticated into practice?

That’s our “One Government” question for a perfunctory BPS that doesn’t deal with the elephant in the room. Given this mixed grill of BBI ideas and Big 4 solutions, what’s cooking, and for whom?

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