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Ideas & Debate

Graft a major contributor to Kenya’s current debt crisis

Fighting corruption
Fighting corruption should be the starting point in our debates on the mounting national debt. FILE PHOTO | NMG 

Nowadays, the word corruption is known and understood even by the youngest of our children, because it is uttered and discussed every time and everywhere. Over the decades, corruption has evolved into an integral part of Kenyan life to the extent of becoming a parallel “economic sector” with a GDP participation of its own. It competes with the national economy for resources.

It has been mentioned that between 25 and 30 per cent of national disposable budgetary resources are diverted to fund corruption. Theft and wastage of public funds, and tax leakages and evasion have all gradually eaten into the Treasury’s capacity to fund public services and development obligations without massive borrowing.

The recent media reports of huge amounts of corruptly diverted cash; large amounts of duty unpaid on contraband goods; and large “briefcase contents” trying to subvert ongoing corruption cases are all vivid indicators of the quantum of leakages from public coffers. This is a strong indication that corruption may indeed be a major contributor to the ongoing budgetary deficits and debt crisis.

Fighting corruption should therefore be the starting point in our debates on the mounting national debt, and it is indeed proper that President Uhuru Kenyatta has made the war on graft his top priority. Similar wars have been waged before, but this time around it appears as if the President may crack it. His singular and apparently “unbendable” resolve and visibility may deliver results. He is sufficiently empowering and supporting the enforcement agencies.

It is important that the President administers a full dose lest corruption develops resistance to later mutate in different formats and locations. If he succeeds, it will probably be his biggest legacy, more impactful than even the SGR, simply because corruption touches on socio-economic lives of nearly every Kenyan.

The timing of a major assault on corruption by any president matters a lot. For effectiveness corruption is best fought immediately in the first weeks of the first presidential term before old corruption cartels from the previous regime hand over to new ones. Mr Kenyatta has opted to take the other option, which is immediately after winning the second term, simply because the re-election burden is not there.

For any war on graft to be won, it is important to firstly understand the chemistry of corruption in Kenya. Many years of observation suggest that one cannot divorce corruption from electoral politics. Election war chests are usually funded from strategically and corruptly organised appointments in critical ministries and parastatal organisations heavily laden with juicy projects.

This may explain why the proposed State corporations reforms failed to take off five years ago. It would have amounted to killing the goose that lays the golden eggs. For effective and sustainable anti-corruption solutions State corporations’ roles, governance, and appointments processes should be reformed.

Corruption also thrives through manipulation of budgetary processes. There is a strong likelihood that project budgetary planning, approvals, and execution in ministries and parastatals are remotely controlled by corrupt cartels that ensure that targeted projects are funded and loaded with corruption margins. It is therefore important that we re-examine and reform the budgetary processes in ministries, parastatals, and parliamentary committees to strengthen oversight and accountability.

The ‘corruption sector’ carries with it a lot of economic activities, especially in areas of property construction. As the war on graft continues, and as banks tighten their mandated oversight roles, we should expect cash flows from this sector to dwindle and impact the GDP.

It is important that the IMF understand that the ongoing anti-corruption efforts will directionally reduce budgetary deficits and public debt.

The lender should also appreciate that more taxation will remove oxygen from the economy resulting in reduced taxable incomes. Less taxable incomes mean higher Treasury deficits and debts. Increasing taxes on critical economic inputs is a self-defeating fiscal proposition. The President has ahead of him a war on graft that must succeed, and for this he is assured of full public support. Even if the war takes the next four years, it is worth the effort because it carries with it a huge legacy value.

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