Kenya’s debt hole escape tops Ruto's to-do list
President William Ruto is hoping that the current tax collections of Sh5.5 billion daily will be adequate to repay Kenya’s mounting debts and still be left with enough to run his government as he crafts a new policy to address the debt crisis.
From the daily tax collections, an average of Sh3.74 billion goes towards settling debt and the incoming president is counting on a new National Treasury team he will set up to assist him walk the tight path.
In the current budget, Kenya plans to spend Sh1.3 trillion for debt repayment out of the Kenya Revenue Authority’s (KRA) target of Sh2 trillion collection, underlining the heavy debt burden the new government will inherit from the Jubilee Administration.
Ruto will take over at a time when Kenya has very few limited options on digging itself out of its debt crisis by moving away from the current policy of borrowing to pay back the Sh8.5 trillion national debt.
The new administration may be forced to demand higher KRA collections against his political base that wants him to reign in on the taxman’s aggression.
“When you find yourself in a hole the logical thing is to stop digging so I asked them whether we could stop. They told me we have to continue digging but I assure Kenyans that we will get out of it,” Dr Ruto said referring to a meeting with Treasury officials.
“We have to stop borrowing but Kenyans must also pay taxes and save. We have had a conversation with KRA and we asked them not to punish taxpayers but collect taxes without threats and intimidation because this is the only way we are going to grow our economy.”
President Kenyatta is leaving behind Sh8.6 trillion debt for the incoming government having inherited only Sh1.79 trillion loans in 2013.
The International Monetary Fund (IMF) has classified Kenya’s debt at high risk of default with debt service consuming 63 percent of tax collections while parliament was forced to raise the debt ceiling to Sh10 trillion as an interim measure to allow the next government to fund its expenditure.
The Kenya Kwanza debt strategy has been unclear with President Ruto saying economic growth and broadening the tax base will suffice in paying the debt while opposing Azimio’s proposals to restructure the debt.
He, however, faces the harsh international debt market that is demanding a premium to lend to Kenya in what has seen Treasury cancel a Eurobond issue and planned syndicated loans.
Analysts say taxes may not suffice and the new President will have to cut expenditure and try to renegotiate Kenya’s unsustainable debt. → Otiato Guguyu
The Sh950 billion public sector wage bill crisis
As Kenya’s wage bill nears Sh1 trillion, President William Ruto will be facing the task of containing pay for civil servants while still creating new jobs to serve a growing population.
The public sector wage bill is projected to hit Sh958.5 billion in the current financial year from Sh615 billion in 2015 highlighting the country’s struggles to tame spending on salaries and allowances for State employees.
The Treasury has been struggling to raise revenues to satisfy the bloated public wage demands that consume about half of taxes, impeding spending on growth projects.
The wage bill has averaged over 50 percent of tax revenues further complicating the State finances currently strained with debt payments and ballooning pensions against rising demand for social spending.
Civil servants face deep cuts in allowances in the coming months as part of Kenya’s commitment to the International Monetary Fund (IMF) to slash the public sector wage bill.
“If you are paying 60 percent of your revenues for debt and another 50 percent on wage bill then you have nothing to run the government. Now we are facing the situation with the IMF calling for restructuring in universities and parastatals, which will mean people losing their jobs,” said economist Tony Watima.
The Treasury informed the IMF the perks will be reviewed going forward under an undertaking tied to the Sh261 billion loan agreements that Kenya has inked with the multilateral lender.
The State aims to cap allowances at a maximum of 40 percent of a public worker’s gross pay, shifting from the present unregulated model that lifts the take-home to 259 percent of the wages. → Otiato Guguyu
Oil prices: Cutting taxes or extending subsidies?
Wednesday’s fuel price review will offer the new administration the earliest opportunity to strike a balance between the heavy taxes that have largely contributed to the spike in pump prices and the ongoing fuel subsidy programme.
President William Ruto promised to review taxes on fuel if elected to succeed Uhuru Kenyatta in a bid to lower the cost of living given that fuel affects the final prices of nearly all basic goods and services given its wide array of use.
But the removal of some of the taxes looks set to hurt collections by the Kenya Revenue Authority raising questions on whether the government will extend the fuel stabilisation programme beyond December.
There are nine taxes and levies charged on fuel, contributing to at least 35 percent of the cost of super, diesel and kerosene.
Taxes compounded the heavy prices of crude in the global market, pushing the cost of fuel through the roof and forcing the State to subsidise the commodities.
“The first thing that we need to do is to look at the taxes because almost 50 percent of the cost of fuel in Kenya is taxes. It is high time that as a country we look at how else to raise revenue. We need to interrogate which taxes to put aside,” Mr Ruto said during the presidential debate on July 26th.
In the current prices, KRA is collecting Sh64.30 per litre of super, which represents 40 percent of the commodity. The taxman is raising Sh52.49 per litre of diesel (37 percent) and sh46.64 per litre of kerosene, representing 36 percent of the cost.
The subsidy has come at a cost to the budget with the Treasury forced to review budgeting plans to free up cash for compensating oil marketers to keep pump prices low.
Kenya has so far spent over Sh100 billion to compensate oil marketers since April last year. The government has also not paid the dealers an estimated Sh35 billion since June.
The International Monetary Fund said Kenya should scrap the fuel subsidy by next month but the government said it will extend it to December, presenting Mr Ruto with a key decision to make in the coming months. → John Mutua
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Big job of fixing agriculture and manufacturing
President William Ruto’s plan to grow the economy through heavy investment in labour-intensive sectors such as manufacturing and agriculture will be put to test as he takes charge.
Dr Ruto has promised that the Kenya Kwanza Government will invest Sh500 billion in lower-level agriculture and informal sectors to create opportunities for women and youth within five years of assuming power.
In his first 100 days, the incoming Head of State had pledged to support establishment of agro-processing industries for farm inputs such as animal feeds and fertilisers, blaming the outgoing regime for failure to implement policies under the Big Four Agenda.
The Jubilee regime, in which Dr Ruto served as a deputy until 2019 when his influence was clipped, partly rode to power in 2017 on a platform of modernising and building new factories to help generate targeted 800,000 new decent jobs for youth.
This was to be achieved under the manufacturing pillar of the Big Four plan, which aimed at creating an extra 1,000 small- and medium-sized (SMEs) factories in targeted sub-sectors such as agro-processing, leather, textiles and fish-processing.
Targeted sub-sectors were to be facilitated in accessing affordable capital, guaranteed by the State.
The Uhuru Kenyatta’s regime, however, struggled to create modern decent job opportunities for Kenya’s largely skilled youthful population in the last five years despite the economy expanding by more than five percent on average.
Economists have linked the “non-job” growth to limited investment in manufacturing and agro-processing whose contributions to the gross domestic product have under-performed targets, with services sector expanding at a faster rate.
The president-elect’s economic blueprint emphasises empowering the economically underprivileged groups through what he calls the “bottom-up economic model.”
Dr Ruto has insisted implementation of his economic blueprint, including Sh50 billion “Husters’ Fund” per year for small businesses and start-ups. → Constant Munda
Hiring freeze ties President-elect Ruto’s jobs agenda to private sector fortunes
President William Ruto will have to rely on the private sector to put the 2.5 million Kenyans out of jobs into some form of employment with a government freeze on hiring.
The outgoing government extended the hiring freeze in parastatals after the National Treasury instructed ministries not to budget for new hires, dashing the hopes of thousands of jobless Kenyans in an economy where companies are shedding jobs.
President Ruto will have to fall back on the private sector which wants his government to reduce the cost of doing business by reducing statutory deductions and delaying the implementation of minimum wage adjustments to deal with Kenya’s 12.3 percent unemployment rate.
“The Federation of Kenya Employers (FKE) encourages the incoming government to implement tax policy reforms that reduce the cost of doing business including a reduction in statutory payroll deductions,” Ms Jacqueline Mugo said.
“We encourage the Government to provide an adequate transition period for employers whenever new legislations are introduced in the Labour sector to enhance buy-in and provide businesses ample time for requisite adjustments. This should apply to statutory wage adjustments such as minimum wage increments.”
The continued freeze on public sector hiring will be bad news for job seekers, especially the more than one million young people who graduate from colleges and universities annually in an economic setting that is plagued by reduced hiring on the back of sluggish corporate earnings.
The number of Kenyans out of work has doubled over a decade of infrastructure-fuelled economic growth and faster adoption of technology that has left East Africa’s largest economy with the highest unemployment rate in the region.
The Kenyan economy has grown by an average of 5.0 percent but this growth has come from capital-intensive infrastructure projects which have not trickled down to the average citizen.
Analysts say the country’s private sector has also rapidly taken up technology that saw massive job cuts, especially in the services like insurance and banking. → Otiato Guguyu
It’s uphill task slashing maize flour prices, curbing inflation
President William Ruto’s administration faces a bumpy ride in lowering the runaway cost of living through policies aimed at lowering prices of maize flour and elevated fuel prices in first 100 days in office as pledged.
Kenyans are experiencing the sharpest rise in inflation — a measure of cost of living year-over-year — in 62 months.
Dr Ruto has promised to slash record maize flour prices once he takes power, citing a deal reached with Agriculture ministry’s officials last week.
It will interesting to see the policy measures his administration will take to ease the cost of staple maize flour, fuel and fertilizer — the three commodities which will have knock-on effects in lowering the overall cost of living in the near term.
While outgoing President Uhuru Kenyatta in July rolled out a month-long maize flour subsidy aimed at halving the cost for two-kilogramme packet to Sh100 for a month, consumers struggled to get the subsidized maize meal in retail stores due to short supply.
The outgoing regime has since April largely resorted to costly fuel subsidy to stabilize fuel prices, pumping more than Sh100 billion over that period.
In his first 100 days, Dr Ruto had pledged to support the establishment of agro-processing industries for farm inputs such as animal feeds and fertilisers, blaming the current food shortages on the government’s decision to remove subsidies and failure to implement food security policies under the president’s Big Four Agenda.
“The challenge of high cost of living can be dealt with by investing in agriculture, period. Explanations about Ukraine, I don’t know what, are tall tales,” he said earlier before winning the presidential vote.
Subsidies are, however, stop-gap measures which are set to face headwinds when the new president take power in a government short of cash after failing to tap more than Sh180 billion of the budgeted foreign debt in the year ended June.
“Sustainability of subsidies really depends on the fiscal space that is available. As we all know, we have significant constraints on fiscal space…because there are some other urgent needs,” Central Bank of Kenya Governor Patrick Njoroge said on July 28.
“In general terms, we are clear that this is not something that will be maintained to the medium term. So there is a sunset for these subsidies.”
Inflation climbed to 8.5 percent last month from 8.3 percent July. The inflation rate in July was the highest since June 2017 when it hit 9.21 percent.
Back then, the Treasury allowed subsidies and waiver of import duties to smoothen purchase of key food items such as maize, rice and milk powder from abroad for several months. → Constant Munda