Treasury CS: Njuguna Ndung'u has his work cut out


Treasury Cabinet Secretary Njuguna Ndung'u speaks at a past event. FILE PHOTO | NMG

Investors will today (Tuesday) be keenly following the vetting of Njuguna Ndung'u, the Cabinet Secretary nominee for Treasury whose experience at the central bank is seen as critical to helping the country recover from its economic struggles.

The economist and researcher at African Economic Research Consortium return to public service as one of the technocrats in President William Ruto's Cabinet dominated by politicians.

Prof Ndung'u, who served as Central Bank of Kenya (CBK) governor for two consecutive four-year terms, from March 2007 until March 2015, is viewed as a safe pair of hands at the Treasury at a time the country is going through economic turbulence precipitated by a high inflationary environment.

The new government is feeling expenditure pressures, including a Sh1.36 trillion debt and a Sh958.5 billion wage bill against tax collections of Sh2 trillion and a slowing economy from elections overhung and global shocks.

If Prof Ndung'u's nomination as Treasury Cabinet Secretary is approved, he will be one of the key men the President will rely on to implement his so-called bottom-up economic model.

The incoming Treasury chief’s first order of business will be to review the current budget and find ways of implementing the Sh300 billion expenditure cuts.

Travel, entertainment, training and publicity budgets will be the first targets in the bid to reduce the nearly Sh1.18 trillion recurrent budget for this fiscal year ending June 2023 by at least one quarter.

The spending cuts will reduce the need to borrow Sh862.5 billion to plug the hole in the Sh3.3 trillion budget for this financial year.

In the current financial year Kenya had planned to borrow Sh280 billion from the international market to fund the budget but global shocks have pushed up the price of dollar loans out of the country’s reach.

Outgoing Treasury Cabinet Secretary Ukur Yatani cancelled the issuance of a Eurobond and syndicated loan early this year due to the high cost of borrowing, with investors at some point demanding rates of up to 22 percent to lend to the country.

Mr Yatani opted for local financing to make up for the shortfall, pushing up domestic borrowing to Sh4.1 trillion and narrowing the gap with foreign loans from Sh302.4 billion in June last year to Sh2.3 billion in the first half of 2022.

Such a policy tends to crowd out the private sector as banks prefer lending to the government, which is considered risk-free.

This means Prof Ndung'u, seen as the force behind the pro-poor policy in the Ruto government's push for cheaper credit to small businesses and individuals, will have to find a way to handle the debt crisis other than borrowing heavily domestically. This may include debt restructuring, which President Ruto indicated would be explored in his maiden address at United Nations General Assembly last month.

Prof Ndung'u may also be required to issue a local bond denominated in dollars and sell State-owned firms to find alternatives to fund the budget.

He could also follow up on the pledge by Dr Ruto to impose higher taxes on the rich, followed by excise taxes on the consumption of items like beer, cigarettes and betting before targeting workers’ income tax and lastly traders for corporate and sales taxes.

Increasing taxes is, however, fraught with political risks for the new administration, with the President having made a campaign promise to bring down the cost of living.

Kenya is not only short of expenditure targets but has committed to a 38-month International Monetary Fund (IMF) programme where the multilateral lenders have a big say on State policy towards fiscal consolidation.

Prof Ndung'u will be crucial in negotiating terms with the IMF and World Bank who have become the main funders of the government through multi-billion shilling loans.

Kenya failed to deliver some of the IMF milestones set in April last year when the fund approved the $2.34 billion (about Sh257 billion) loan to the country. The new Treasury Cabinet Secretary will now be expected to deliver on the conditions, including lifting subsidies and returning minimum tax on companies.

While his experience and mettle is unquestioned, Prof Ndung'u will likely also answer questions over graft allegations, albeit in good company among President Ruto’s nominees, many of who face similar charges.

An audit on the collapse of Imperial Bank found that the former CBK governor’s wife received gifts from the bank’s former managing director, Abdulmalek Janmohamed, as part of an alleged scheme to co-opt the banking sector regulator into abetting fraud that crippled the lender.

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