ECONOMY: GVT IN TIGHT CORNER

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Jubilee plans a Sh447B railway, a new seaport, an airport terminal at JKIA, Sh24B laptop novelty, and a million acre farm. But Kenya is running on empty. Just what is happening?

By ALFAROUK MAALIM

Populist policies, extravagant campaign promises, and a knack to play politics with the economy have all conspired to box the Jubilee administration into a tight fiscal corner, just 12 months since it assumed power.

 

When Uhuru Kenyatta and his deputy William Ruto took over from economist Mwai Kibaki, the revenue projections were high. The economy had been projected to grow at five per cent, inflation had been contained, people had money in their pockets, and goods were affordable.

Yet, analysts had predicted, it was going to be tough for the Jubilee duo to keep the trajectory in the face of the money guzzler, Devolution. Add to it the lofty campaign pledges and The Hague cases. Within a year, the government flirted with a massive retrenchment in the civil service, but quickly shelved the idea, as it appeared a threat to the duo’s political ambitions.

Kenyatta has frozen recruitment and promotions within government. But he has gone ahead to reward his political cronies with top jobs. Traditionally, such plum jobs are avenues for sleaze, either through legal means –unnecessary allowances —or illegally, by inflating tenders or plain theft.

The contentious appointments fly in the face of Jubilee’s initial promise – leaner and efficient government of 18 ministries run by technocrats.  

And in its haste to raise revenue, Jubilee approved a debilitating law to increase the monthly contributions to the National Social Security Fund – a key parastatal with a history of scandals— and slapped Kenyans with a 16 per cent tax on over 400 essential goods and essential services.

Inexplicably, they pushed for a one-off Devolution of all services, before ensuring that the counties were well prepared to deliver. This development is tacitly fomenting public dissatisfaction against Devolution.Indeed, healthcare provision in the counties is on its deathbed, as doctors trudge to private practice – 300 of them, according to Victor Ngani, chairman of the national doctors’ union.

A confidential report by the Parliamentary Budget Office (PBO) appears to have jostled the Presidency. It forecasts hard times – because money is lacking.

 

Then came the shocker. A report by the Auditor General on government spending showed that Sh300 billion is misappropriated –stolen, pilfered, wasted on unnecessary things. Kenyatta himself had admitted that he pays ghost-workers Sh70 million every month. He had also lamented that there were corrupt fellows in his office.

Constitutional lawyer PLO Lumumba summed up the President’s approach as “trying to treat a cancerous problem with a bandage”.

“You cannot water the desert with a teaspoon,” said the former Director of the independent anti-corruption commission, on a national TV channel.

Interestingly, and despite the gloom, Jubilee seeks to build a Sh447-billion railway from Mombasa to Nairobi, a new seaport in Lamu, a new airport terminal in Nairobi, acquire laptops worth Sh24billion, and establish a million acre agricultural project in Galana. They had these plans all along, why did they wait for a full year to show that there’s very little money in the public coffers?

In off-the-record interviews with economists, State House had to engineer a sense of panic about the wage bill to forestall public servants demanding increment.  The President is simply thwarting any push for higher salaries around this time of the Budget.

But analyst Bian Shitawa thinks the President and his deputy shot themselves in the foot. “They enacted the VAT Act and increased the cost of goods. They just made life expensive, even for companies. When you see companies like East African Breweries Limited sacking 100 employees, you should know that this is just the beginning,” he told The Nairobi Business Monthly.

Indeed, there’s more than meets the eye.  The clamour for pay-cut comes just less than two months after the International Monetary Fund (IMF) gave the economy a clean bill of health. “The external and fiscal positions are now stronger, inflation has been tamed, the economy has maintained solid growth, and rapidly expanding financial inclusion has given millions of Kenyans a stronger stake in the economy,” said IMF boss Christina Lagarde.

This publication is privy to high-level discussions within Treasury, Jubilee-dominated Budget and Appropriations Committee and the President to ensure the annual ritual, teachers’ strike, is ignored. Instead, the MPs have earmarked more money for polytechnics to train school drop-outs. Each of the 290 constituencies will get Sh5 million.

The Head of Macroeconomic Analysis Division at the Budget Office, Martin Masinde, and a fiscal analyst Millicent Ojiambo, are emphatic in their report that if the Jubilee leaders do not make the hard decisions, they can as well kiss their lofty pledges goodbye.

A close look at the report, Public Sector Wage Bill and its implications on the Economy of Kenya, shows that the 42-ministry coalition Cabinet of 2008-2013 ballooned the wage bill – from Sh240.5 billion to Sh457.5 billion.

Masinde, Senior Deputy Director in PBO, and Ojiambo, who prepared the explosive report, are clear in their verdict that Jubilee will have to sack civil servants, stop wastage, and creative news avenues of revenue.

The PBO – economic and fiscal advisors of MPs –authored the report to initiate debate on the clamour for more money by elected leaders.  Their idea is to give a clear picture on the state of the economy, to inform MPs’ decisions.

In the report, Kibaki’s decision to raise the retirement age from 55 to 60 kept the wage bill high because it slowed attrition. They also argue that the “realignment” of the pay structure left out teachers, and that spawned strikes.

The advisors now want all staff aged 50 and above to be placed on contract. “This measure will give an exit window to those who want to retire early, in addition to making the employees on contract to work harder in order to be maintained as staff,” Masinde and Ojiambo argue.

The PBO is also emphatic that the Presidency should not even think about increasing taxes, because, that will strain Kenyans more, and make investors shy away.

In simulations by the PBO, if Sh90 billion is injected into infrastructure in the next financial year, the economy will grow by 7.9 per cent, and not the 5 per cent Treasury projects.

The PBO says that while the Jubilee government had prided itself as ready to take up technology, the uptake was “low”.

 “Most parts of the country now have access to the internet and other telecommunication facilities. However, the government’s uptake of the ICT infrastructure is still low with some critical sections still having bureaucratic processes that are cumbersome and costly and would have otherwise saved the country massive resources,” the office noted in a report titled Keeping the Promise: Budget Options for 2014/15 and the Medium Term.

That’s the report that MPs will use to prepare the budget. It’s not just the national government that’s getting the barbs. The 47 county governments, will also have to automate their financial systems, by fully activating all the modules in the Integrated Financial Management Information System.

If the Budget and Appropriations Committee takes up the advice of the economists and fiscal analysts in the Budget office, then, much of the money paid in advertisements on television and in newspapers, will all disappear.

The economists have asked MPs to tell governors and the National Treasury that the millions spent on buying advertisement space and airtime in the media will be saved if the adverts are placed online on the websites of respective government departments.

To do this, the MPs will have to change laws that require publication of job vacancies, tenders and special announcements in at least two newspapers of national circulation. They will also have to battle legal queries about discrimination of a large chunk of the country’s population that lack access to the internet.

The House mandarins also want the government to make sure that payslips for all the civil servants are sent in electronic format, to save the millions spent on paper, printing, envelopes and postage. The government has also been asked to cease cash payments and instead go for electronic payments.

“Embracing ICT will substantially reduce the government’s spending on printing and advertisement, curb corruption by ensuring minimal handling of cash by government officers and improve the turnaround time in service delivery by government entities,” the report of the Budget Office added.

Kenya is ranked third in Africa by the Global ICT Development Index behind Egypt and South Africa.

 All told, is the government’s fuel tank empty or is Jubilee pushing scare-crow tactics to forestall industrial strikes?

 

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