EXPERT COMMENT

Tame fiscal deficit for economy to grow

The debt figures are not looking good.

In Summary
  • The Treasury will seek to stimulate and expand a stalling economy
  • It is borrowing to pay civil servant salaries — a serious red flag.
Treasury. Photo/Monicah Mwangi
Treasury. Photo/Monicah Mwangi

Today, when the over Sh3.6 trillion budget is read, the overall picture will be that of a National Treasury that is torn within itself — a budget too big to fund and a conflicting fiscal policy.

The Treasury will seek to stimulate and expand a stalling economy while bludgeoning it with a heavy tax burden — a zero-sum game.

The Treasury has for some time now pursued an expansionary fiscal policy where the government pours millions of shillings on big infrastructure projects.

Such a policy is meant to go hand in hand with a reduction in overall taxation to ensure that there is money in the economy to stimulate economic growth.

This would have seen increased consumption and lowered unemployment rates as demand for all factors of production rises.

This, however, cannot happen because the same government needs money to fund the very expansionary fiscal policy that it has long initiated after overstepping its outer limits.

Corruption and other management ills have made this possible as infrastructure projects are poorly chosen and executed.

The Treasury has fallen on the very bad side of an expansionary fiscal policy — over indebtedness.

High debt levels are not sustainable in the long run and often lead to disastrous results.

The debt figures are not looking good.

Of the Sh3.6 trillion, Sh2.04 trillion will be funded by government revenues, of which taxes account for Sh1.776 trillion.

Our recurrent expenditure stands at Sh2 trillion while development is only at Sh629 billion.

Currently, the Treasury is borrowing to pay civil servant salaries — a serious red flag.

The Treasury requires nearly a trillion to finance the capital projects and service her debts, money that it does not have.

Effectively, Kenya must borrow to fill this budget hole.

While the World Bank and other donors always come to our aid, their credit facilities come with some unpalatable conditions.

The time of reckoning has come and the Treasury must address first, the conflicting fiscal policy and second, the rising fiscal deficit.

One thing is for sure: Kenya is in a financial hole and must stop digging.

The writer is a stratcom specialist and an economist who loves real estate.