Ideas & Debate

BBI must not add to our fiscal woes

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President Uhuru Kenyatta and former Prime Minister display a copy of BBI Report during the presentation at Kisii State Lodge. PHOTO | PSCU

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Summary

  • On spending, national government is expected to cost Sh129 billion more.
  • These are challenging Covid-19 times, and the increased Sh161 billion overall shortfall takes us to our first-ever trillion-plus shilling deficit.
  • If, for argument’s sake, we add the original amount of debt redemption envisaged, then this year we’re basically working with a Sh3.4 trillion budget against Sh1.9 trillion in total receipts.

In his Mashujaa (Heroes) Day address on Tuesday, President Uhuru Kenyatta posed a three-pronged “national question” to Kenyans. Let’s nuance it. First, how do we move from a “zero-sum” to a “positive-sum” game in our competitive electoral space in a way that promotes inclusion; that “accommodates all communities in (and presumably after) an election”?

Second, how do we promote equity in the distribution of opportunities and resources to prevent “our practice…that resources and opportunities go to those occupying positions of power”? Third, how do end the two year economic shutdown in every five year electoral cycle, in these multi-party times?

The following day, the President and Opposition Leader Raila Odinga received their long-awaited Building Bridges Initative (BBI) report. We have been asked to read and internalise it, though it isn’t quite clear if it’s still a draft with room for further suggestions or we’re already in “Yes/No” mode.

Recalling the nine thematic areas that launched this initiative, I am still reading the document, with one eye on the three-pronged question; and another wondering how a peace-making reform opening in 2018 became a “life and death” constitutional moment in 2020 with 2022 around the corner.

My third eye will seek the report’s recommendations on electoral justice (“stolen/fraudulent” elections), elections management (“mismanaged” elections) and closure on the 2008 Agenda Four (as opposed to the 2018 “Big Four) long-term issues, given that a new constitution was only one of these ten issues.

Let’s divert ourselves a little. As part of Kenya’s 2021/2022 budget preparation process (formally, the 2021/2022-2023/24 Medium-Term Budget Process), the Budget Review and Outlook Paper (BROP) was quietly launched and approved. I’ve only seen a couple of stories covering it, mainly in the Business Daily.

Here are a few of my observations beginning with what’s changed in the current 2020/21 budget since it was approved in June. Recall that a Sh841 billion budget deficit was set out at the time.

So, first, the receipts “top-line” (ordinary revenue, appropriations in aid and foreign grants) is down by Sh33 billion. That’s Sh51 billion more in income tax, Sh87 billion less in VAT, customs and excise and Sh4 billion more in investment and other income.

On spending, national government is expected to cost Sh129 billion more. These are challenging Covid-19 times, and the increased Sh161 billion overall shortfall takes us to our first-ever trillion-plus shilling deficit. If, for argument’s sake, we add the original amount of debt redemption envisaged, then this year we’re basically working with a Sh3.4 trillion budget against Sh1.9 trillion in total receipts.

Let me paint a simple picture here. If we take total tax collections as 1,000 bob, here’s what we’re working with (all numbers are rounded). Sh498 in income tax, Sh296 in VAT and Sh206 in customs and excise. Add Sh83 in investment and other income, Sh175 in appropriations in aid (internal ministerial revenues) and Sh38 in foreign grants. That gives us, if all goes to plan, Sh1,297 in revenue to spend.

Here’s the spending. Sh1,364 on national government, Sh397 on interest and pensions and Sh214 on counties. The national government spending includes Sh326 in wages, Sh398 is for service delivery and Sh457 for development. On the other hand, Sh695 on constitutionally mandatory consolidated fund services (including interest and pensions) are a first charge on the public purse.

Total spending with and without debt redemption is Sh2,274 and Sh1,975 respectively. Ignoring redemption, a deficit equivalent of Sh555 in June is now a deficit of Sh678 for every Sh1,000 in taxes.

That’s just the data for 2020/21.

Let’s go further. The BROP slashes projected revenues for 2021/22 and 2022/23, basically our pre and post election fiscal years, by a cumulative Sh708 billion and projected expenditure by a total of Sh95 billion. By the end of last June, public debt was Sh6.6 trillion. Projections for June 2021, 2022, 2023, 2024 and 2025 are, wait for it, Sh7.6, 8.5, 9.3, 10.1 and 10.9 trillion respectively.

Oh, and this ignores aforementioned pre and post election economic shutdown, as well as the scope and scale of post-Covid economic recovery. As well as any investment brainwaves that might emerge in the next 22 months.

Now let’s get back in the house in a roundabout way. In 2003 at the time of the Bomas Constitutional Conference, I was once asked by a civil society group to do a “back of the envelope” costing of the then draft constitution. Not to establish whether or not it was fiscally affordable (as opposed to economically viable or politically and socially acceptable), but what space existed to afford it.

In other words, a three-pronged “national fiscal question”.

What do the proposals cost? How do these costed proposals affect the cost of government? What reform space exists to make the proposals affordable? In the end, there was more than enough reform space to afford the proposals (e.g. going harder on mainstreaming Article 43 into the budget), but there just wasn’t (and there still isn’t) enough space for the reformers.

Hence today’s “high cost, business as usual” government. But I’m still reading the BBI report. The politicians, lawyers and activists might not like it, but I hope BBI answers our national fiscal question.