Yatani budget exposes Fuliza economy

There is very little that is new or surprising in the Jubilee administration’s last budget. Perhaps it is because unlike the days of yore when Budget Day would deliver surprises, the practice today is that large chunks of the government’s fiscal plan are put out long before the official budget day.

The spending plan is published in that document called the Budget Policy Statement that came out several months ago.

I had expected that the Jubilee administration would use its last budget to launch a national conversation about the big and bold ideas and suggest what the next administration needs in the medium term to lead us to economic renewal.

Indeed, Mr Yatani’s budget was being read at a time when the country was still in the middle of a disruptive fuel crisis. The spectre of long queues at petrol stations against the backdrop of the heat generated by noisy electioneering only added to the depth of anxieties around the economy’s prospects in the medium term.

Even though the indications were that the fuel crisis was about to ebb, the crisis brought the economy’s precariousness to the open.

Clearly, ours is an economy that cannot absorb any major external shocks: a low-income primary goods exporting economy remains exposed to large fluctuations in terms of trade and permanently vulnerable to the volatility of its exchange.

The projections currently are that if the war in Ukraine persists for too long the pressures on our foreign exchange reserves may turn out to be very disruptive especially since ours is an economy where petroleum imports account for one third of total imports.

What has changed in terms of the structure of the budget and spending plans? Going through Mr Yatani’s spending plans, you are struck by just how much the structure of government spending has not changed in any substantial way through changes of presidential tenures.

Yes, we still have public hearings and the so-called sector working groups. We still have the so-called ‘resource envelopes’. We still design priorities around the so-called Medium Term Expenditure Framework (MTEF).

Yet nothing seems to have changed. In policy documents and during budget hearings, the consensus is that agriculture and food security is the top priority. Yet when you look at the spending plans, budgetary allocations to agriculture and food security have stagnated and the biggest resource envelopes still go to education, infrastructure and security.

In terms of the size of the budget, Mr Yatani’s Sh3.3 billion spending plan is the biggest ever. The Treasury Cabinet Secretary has provided for a budget deficit of Sh800 billion, a rather large increase considering that Jubilee has been presenting annual budgets with deficits at an average of about Sh600 billion.

Clearly, this economy survives and only manages to keep an appearance of prosperity by relying on a burgeoning mountain of debts. I don’t mean public debt alone.

Corporate and personal borrowing, as we have seen in billions worth in monthly volumes of Fuliza and M-Shwari, transactions lay it bare that this is an over-indebted society operating close to its limits.

This year’s budget is written on the assumption that the economy has recovered from the impact of Covid-19 and is projected to grow by as much six percent.

Yet the fundamental of the anaemic growth the economy has experienced in recent years is something we can’t ignore, namely, a declining trajectory on new investment by businesses, decades of flagging corporate profitability, languid productivity growth, and a rising proportion of university graduates in low-value, low-income and relatively insecure jobs.

Fiscal policy must go beyond introducing measures to bail out and prop up non-performing parastatals and occasional bailout of failing businesses. A good budget is one that makes it easier for entrepreneurs with ambition and appetite to take risks to thrive.