Is 2021 budget policy statement realistic?

Continuing from last week, the National Treasury’s 2021 Budget Policy Statement (BPS), which focuses on the Jubilee administration’s ninth and final 2021/22 budget, is presented within the debt overhang context that has reportedly led to calls to extend the ongoing Debt Service Suspension Initiative (DSSI) from June to December 2021. These are interesting times.

The emerging news that the world is now dealing with two pandemics, the original Covid-19 and its variants, only adds to this context of uncertainty, especially in terms of our export markets and foreign financing options. That neighbours such as Rwanda have reverted to new movement restrictions following a surge in infections tells us that Covid-19 ain’t over yet. These are crazy times.

Out on our streets, it’s all Building Bridges Initiative (BBI). Let’s quickly examine the state of play. With a million-plus signatures verified, the constitutional amendment bill (that first amendment containing 74 amendments) is now before counties. If 24 of our 47 county assemblies approve the bill, it comes back to Parliament (both National Assembly and Senate) for approval by a simple majority.

Once that’s done, it goes to the President for assent and in the twinkling of an eye, we have an amended constitution. Outside of a court decision, the only way that this BBI first amendment runs aground through this Article 257 popular (as opposed to Article 256 parliamentary) initiative route is if 24 or more assemblies reject the bill. If, however, either the National Assembly or Senate do the same, we go to a referendum. If they don’t, we don’t. In plain English, a referendum looks pretty unlikely.

Of course, this “no-referendum” viewpoint assumes that none of the matters under Article 255 have been touched by BBI. That is, the supremacy of the constitution, territory of Kenya, sovereignty of the people, Article 10 national values and principles, bill of rights, term of office of the President, independence of the Judiciary and Chapter 15 commissions and independent offices, functions of Parliament, objects, functions and structures of devolved government, and the actual constitutional amendment provisions of Chapter 16. Basically, therefore, the constitution is amended without a noisy, disruptive referendum. Will the courts decide? Watch this space, these are clever legalistic times.

OK, let’s take a deep breath and get back to the BPS! Simply, the BPS chiefly looks at the current and expected future state of the economy and presents a revenue, expenditure and borrowing outlook for the coming year and medium-term. Let’s use this framework to tease out a couple of questions.

On the economy, let’s look at the growth number. 0.6 percent in 2020 is bullishly expected to bounce back to 6.4 percent in 2021 (call this recovery, not new, growth) before falling to 5.5 percent in 2022 “due to in part the uncertainty associated with the 2022 general elections” before rising to 6.1 percent by 2024. Hello, didn’t the National Treasury chaps read the BBI document? Or is that they don’t believe that BBI deals with our perennial pre/post election business and economic uncertainty? And what thoughts about consensus forecasts by reputable economists that put 2021 growth at 5 percent?

Further interrogation must go beyond the usual text around a stable macroeconomic environment, continued “Big 4” and infrastructure investment, favourable weather and new stuff like the Economic Stimulus Program and still “planned” Post-Covid 19 Economic Recovery Strategy. Which are the expected growth sectors and industries? What is growth’s hardware versus software decomposition? When will we ever get Treasury to demonstrate specific impacts from Kenya’s grand initiatives, beyond “we spent this, we built that, we trained those, we gave them these”?

Let’s turn to the fiscus; which is the core of the BPS. Since we’re now in the habit of measuring stuff “per day”, here are the 2021/22 projected numbers. Recall first that mysterious presidential statement about Sh2 billion lost per day, which is roughly equal to this administration’s daily borrowing level.

The big picture is we will raise Sh5.4 billion per day in revenues (up from Sh4.8 and 5 billion in 2019/20 and 2020/21). We will spend Sh8.1 billion per day (up from Sh7 billion and 7.9 billion in 2019/20 and 2020/21). Daily deficit? Sh2.7 billion (higher than Sh2.3billion in 2019/20; lower than Sh2.9 billion in 2020/21).

Let’s dig further. The tax take is estimated at Sh5.4 billion per day, up from Sh4.8 billion in 2019/20, and Sh5 billion expected in 2020/21. Income taxes will rock in at Sh2.3 billion daily, VAT at Sh1.3 billion. On expenditure, debt interest payments at a daily Sh1.6 billion will now exceed the wage bill and O&M (both Sh1.5 billion per day) and the daily billion to counties, and are only exceeded by development at Sh1.7 billion per day, a billion of which is foreign-financed. Each spend item is less than Sh2 billion.

Hence the second question set. Is the revenue projection realistic in these Covid-19 times? Will we ever get beyond tax as basic revenue raising to tax as economic policy instrument? Why isn’t the expenditure cull happening, despite claimed cuts to goods and services (i.e. service delivery) as “austerity”? What about that daily Sh2 billion lost? Finally, how and in what ways will BBI help? End of interrogation.