Ideas & Debate

The next regime must fix Kenya budget circus

treasury

A pedestrian walk past the National Treasury building in Nairobi on June 12, 2014. FILE PHOTO | NMG

denniskabaara_img

Summary

  • Central Bank of Kenya Governor Patrick Njoroge calls it “budget abracadabra”.
  • But we are getting ahead of ourselves.
  • Let’s start with the idea that the International Monetary Fund (IMF) wants greater fiscal transparency and better public finance and investment management.

Central Bank of Kenya Governor Patrick Njoroge calls it “budget abracadabra”. But we are getting ahead of ourselves. Let’s start with the idea that the International Monetary Fund (IMF) wants greater fiscal transparency and better public finance and investment management. Indeed, it was interesting to see three recent postings on National Treasury’s website in line with IMF commands to Kenya.

First, the updated public debt register as of June 30,2020. Second, a statement on the potential fiscal risk that would arise in the event of a collapse in ongoing Public-Private Partnership (PPP) projects. As the Business Daily reported, the total contingent liability stands at roughly Sh159 billion; Sh102 billion on roads projects and Sh57 billion on energy PPPs.

I view PPPs as a halfway house of privately built and run public assets sitting between public procurement and privatisation, with the costs and benefits of both.

Third, what one imagines is Kenya’s first ever tax expenditure report. Basically a report on the sum total of our tax breaks and giveaways. The good news is that the number has fallen from Sh437 billion in 2017 to Sh318 billion in 2020. The bad news is that this is a total giveaway of Sh1.5 trillion in these four years, which is roughly a quarter of the actual tax take during this time, with VAT as lead suspect.

Hopefully, the Treasury will soon comply with other IMF “requirements” such as quarterly reporting on pending bills and comprehensive “tenderpreneur” disclosures on public procurement.

Back to budget abracadabra. A final version of the Budget Review and Outlook Paper (BROP) was also published this week. Looking at the 2022/23 fiscal framework being set up by the current administration to be implemented by the next, the revenue projection is set at an astonishing Sh2.4 trillion, of which Sh2.1 trillion is ordinary revenue.

For perspective, the total revenue take in 2020/21 (last full fiscal year) was estimated at Sh1.7 trillion. So we’re looking at a 40 percent jump in this Covid-19 recovery moment.

If I’m not wrong, that was the abracadabra that Dr Njoroge was talking about.

On expenditure, we are looking at Sh3.2 trillion, plus anything up to another Sh500-600 billion for debt redemption. In short, even with Sh700 billion more in revenue fantasy, there’s a shortfall of up to Sh1.4 trillion that faces the next administration before those electoral promises we’re hearing about cash for constituencies, hustlers, agriculture and households. Only in Magical Kenya!

With all of this at the back of my mind, I decided to virtually pop into the Public Sector Budget Hearings that began on Wednesday and end today. I quickly realised that this public participation process is now a soul-less exercise in futility. I logged out as quickly as I had logged in. Permit me to explain.

One of the purposes that BROP serves is to set recurrent and development budget ceilings for each sector. In other words, the instruction coming from the Treasury is “people, things are tight so please keep within the ceilings”. These ceilings are not random, but reflect an assessment of past expenditure performance and forthcoming expenditure needs, around priorities such as the Big Four agenda.

We have ten Medium-Term Expenditure Framework (MTEF) sectors. Based on these ceilings and other guidance from Treasury, sectors prepare reports which contain resource “bids” that are presented to the public during the hearings. Only the National Security sector doesn’t participate in this process (a story and question for another day). But we have access to nine sector reports. Here’s the big picture.

Total sector ceiling (all ten sectors) equals Sh2.04 trillion. That is to say national government costs more than the tax take, before debt and counties. Oh, but sectors don’t care about that; so they put in a grand total resource bid of Sh3.07 trillion, assuming national security keeps to its ceiling. That is a trillion more than available. This is the result of weeks of work and play at the sunny Coast (retreats, per diems etc) that produced almost 2,500 pages of long stories and big numbers across the nine sectors.

Now here’s the kicker. During this week’s hearings, sectors present their grand plans and programmes to the public based on their resource bids, not the ceilings. In other words, they are telling the public, “if we get the money we want, this is what we will do” not “this is what we want to do, but because of resource constraints, this is what we have prioritized, so what do you think?” Public participation 101.

This isn’t the first time we are seeing this budget impunity theme of “if we ask for more than we need, we might get what we want”. Looking at the past five years from 2018/19, sector resource bids at Sh14.4 trillion have outpaced sector ceilings of Sh9.4 trillion by a cool five trillion shillings.

Here’s a twist. Treasury will ignore these resource bids and revert to its original ceilings when publishing its Budget Policy Statement next month. So we have a budget circus. And the public is none the wiser.

Before we get to debt questions, Kenya’s next administration must fix this basic budget impunity.