Ideas & Debate

Revisit our public spending problem

debt

With schools collapsing, health care struggling, business in the doldrums, road carnage featuring in the news almost weekly and food insecurity (hunger) reportedly now ravaging 24 (or half) of our 47 counties, one is often forced to wonder when, if ever, we shall see any returns on President Uhuru Kenyatta’s “Big Four” agenda beyond fancy speeches at international meetings.

None of this seems to bother us too much, with all focus remaining on reforming a constitution we haven’t fully or properly implemented. Look forward to the Council of Governors publishing details of its Ugatuzi (Devolution) initiative to add to the independent Punguza Mizigo (PM - reduce the burden), even as everyone waits for the “handshake”, sorry, Building Bridges Initiative(BBI) Task Force report.

I suspect that if these three initiatives were combined into one, we would end up with a government so unwieldy and expensive that today’s might look like a start-up.

We also seem resigned to the parlous state of our public finances, in a national “Shauri ya Mungu” (Leave it to God) moment. I have been surprised by the lack of commentary on the forthcoming 2020/21 budget process (2020/21 to 2022/23) which was launched at the end of August 2019. This was followed by the Treasury’s advance (as in, pre-Cabinet) publication of the 2019 Budget Review and Outlook Paper (BROP), to which they invited public comments. There’s a first time for everything.

The BROP, is supposed to be what it says - a review of the recent past and a peek into the medium-term future. Some highlights from the recent past (the 2018/19 fiscal year) include a Sh123 billion shortfall in revenues. This included an ordinary revenue gap of Sh91 billion, mainly in income taxes and VAT. Erm, falling incomes and reduced spending in the economy, anyone? Total expenditure side was Sh149 billion short during the year. Again, since government doesn’t have its own money, it surely can’t spend what it doesn’t have without resorting to borrowing. No surprises there.

Looking forward, the headline number is that total public debt, which was Sh1.9 trillion in 2012/13 (incurred over 50 years since independence) will, ten years later, stand at Sh7.4 trillion by 2022/23. For the record, GDP in this ten year-period will have grown from Sh4 trillion to a projected Sh15 trillion.

The fundamental concern today is that new debt is simply recycling older debt and not building new assets. All of this despite a revenue forecast of Sh2.7 trillion in 2022/23 against Sh1.6 trillion in 2018/19.

Which brings us to the elephant in the room — public expenditure. As long as revenues are forever chasing spend, deficit reduction, let alone fiscal consolidation, will remain pie in the sky. I see three main troubles with our public spending.

First, I hark back to the constitution, whose whole point was to reform (and modernise) our public spending framework, not to add fresh new layers to it.

Think about national government administrations in counties that are parallel to county governments, and regional development authorities against regional economic blocs. Think about the typical triple county payroll - staff hired directly by counties, staff transferred from national government after devolution and former central government staff who worked as district officers. Let’s not even get into the half-hearted performance frameworks and incomplete re-engineering and re-costing of functions between and across our two levels of government. We haven’t addressed these fundamentals.

Instead, and second, we prefer to focus on non-structural stuff. In its latest circular to ministries, departments and Agencies this week, the Treasury identified cost-saving opportunities in training, newspaper provision, foreign travel and air travel, communication and airtime allowances, publicity and advertising, motor vehicle acquisition, renting and partitioning of offices, purchase of furniture, use of government transport outside office hours.

Apparently, this is the stuff that will “free space” for “Big Four”. Let’s not even consider future headlines when spending ceilings are honoured more in the breach. And we’re not yet talking about the waste and misspending that the Auditor-General will then discern in the fullness of time.

A third perspective should give us pause for reflection, especially since it relates to the earlier two.

As the World Bank noted in its 2019 Public Expenditure Analysis for Kenya “a growing share of recurrent spending is non-discretionary, which could undermine government’s ability to re-allocate resources to priority sectors”.

It further estimates that “approximately 68 percent of the central government budget is on items of high to medium rigidity (items that cannot easily be adjusted due to high judicial, political or social costs e.g. counties, parastatals, Judiciary, Parliament, debt and payroll).

Now that’s frightening. This isn’t just a debt trap that we’re looking at.

How did we get here? Food for thought.