Ideas & Debate

More coherent planning improves fiscal outcomes

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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

A month ago, I wrote that Kenya has a public policy problem, not a constitutional moment (now referred to as a first amendment which actually comprises over seventy actual amendments to 14 of the constitution’s 18 chapters). That the constitution is both our ultimate policy guide and our basic law.

Lest we forget, the Building Bridges Initiative (BBI) report from which these constitutional amendments have arisen also contains 14 proposed legislative bills (eight of which are amendment bills), 12 proposed policy guides (covering up to 40 possible new policies) and hundreds of proposed administrative reform actions. Good luck explaining that to the everyday Kenyan seeking relief in these testing Covid-19 times!

But I digress. In the real world, and after much kicking and screaming, Kenya this week signed onto a six month Debt Service Suspension Initiative (DSSI) with 10 bilateral creditors who are members of the Paris Club. Efforts are reportedly underway to seek an expansion of this short-term debt service relief to other members of the G-20, especially China. The amounts of relief are relatively small – Sh30 billion plus so far, possibly another Sh40 billion, given our debt service this year is over Sh900 billion - but the reward is new IMF and World Bank money approaching Sh400 billion. Fiscal straightjacket, anyone?

In its 2021 Global Economic Prospects report, the Bank predicts that Kenya will be the fastest growing African economy (6.9 per cent GDP growth) on the back of a restarted socio-economy, including education. This sounds optimistic (Treasury also bullishly forecasts 6.5 per cent growth in 2021) if export markets remain shut as new Coronavirus variants emerge and vaccine distribution only slowly builds up.

The growth trendline only happens if our private sector has re-engineered for growth, whose impact is probably only going to bear fruit in 2022 or 2023. In the meantime, with government revenues falling short of expectation (read a trillion shilling budget deficit this year, not next, as officially noted as early last September) and little in the way of substantial expenditure restructuring, the simple conclusion is that Kenya’s fiscus is only going to get worse before it gets better. Simply, debt distress is already here.

Let’s paint a simple fiscal picture. Consolidated fund services (including fast increasing debt service and pensions) and payroll are “fixed costs”. To improve the fiscus is to make the hard choice between cutting development spending, allocations to counties or normal service delivery (read, procurement). Increased external debt needs export dollars. Increased domestic debt crowds out private sector. That’s the political-economic “hot potato” that BBI distracts us from, even as the IMF comes to the rescue.

In the coming weeks, look forward to two documents. The National Treasury’s 2021 Budget Policy Statement, which basically lays out the 2021/22 national budget framework. The Supplementary Budget Estimates for 2020/21, which will tell us where we are on this year’s budget.

Allow me to digress again. Beyond the scary numbers, there will be soothing words.

We will hear about the Sh950 billion 2020-2022 Post-Covid 19 Economic Recovery Strategy (ERS) at national level, which updates the Big 4-led 2018-2022 Vision 2030 Medium-Term Plan (MTP) and builds Kenya’s recovery. And the Sh132 billion 2020-2023 County Covid-19 Social Economic Reengineering Recovery Strategy (CCSERRS); an “all-county” strategy supported by 47 county-specific strategies.

The ERS prioritises the following: Health care systems. ICT and digital infrastructure. Private sector facilitation. Green growth. Support to MSMEs. Social protection. Disaster risk management. Diaspora resources. Police and security services. Enhanced governance and economic management. Policy, legal and institutional reforms. Strengthened monitoring and evaluation systems.

The CCSERRS prioritises the following: Health care systems. ICT capacity. Private sector support, especially MSMEs. Human capital development. Policy, legal and institutional reforms. County preparedness and response to pandemics and disasters.

Priority sectors in counties? Agriculture. Water and sanitation. Urban development and housing. Transport. Tourism. Health. Education. Social protection. Gender and youth. At national level six social sectors - health, education, water and sanitation, social safety nets, water towers protection and labour – and eight economic ones (MSMEs, tourism, horticulture, agriculture, manufacturing, trade, transport and financial services).

Is duplicated thinking our unseen pre-budget problem?

Remember, budgets come from plans. For counties, the law prohibits any budgeting, appropriation or spending without a plan. There is no such requirement at national level. Today, we have one long-term vision, one national MTP, 26 national sector plans, at least 22 ministerial strategic plans, 47 County Integrated Development Plans, and up to 470 county sector/departmental strategic plans. To which we add one ERS and 48 CCSERRS. We lack the one “joined-up” (not consolidated) master plan, and it isn’t rocket science to suggest from experience that there is lots of duplication and overlap across plans.

Here’s a new question. Is our Medium-Term Expenditure Framework (the approach that links policy, planning and budgeting) working? Simply, how do we get better planning to improve fiscal outcomes?

Then consider Ronald Reagan’s words “governments have a tendency not to solve problems, only to rearrange them”. Food for thought in this “dynasties vs hustlers vs rotational presidency” BBI moment.