TOUGH CALL

Kenya under lenders pressure to cut state agencies

Controlling the government wage will yield significant savings, exchequer says

In Summary

•Treasury plans to reduce the wage bill to Gross Domestic Product by about 0.5 percentage points by financial year 2023/24.

•The Parliamentary Budget and Appropriation Committee has insisted on streamlining of functions in government.

National Treasury CS Ukur Yatani/
National Treasury CS Ukur Yatani/
Image: TREASURY

The National Treasury faces a tough decision on the restructuring of state agencies as part of its fiscal structural reforms to cut the government wage bill.

It plans to reduce the wage bill to Gross Domestic Product by about 0.5 percentage points by financial year 2023/24, one of the condition by the International Monetary Fund (IMF) which says  while Kenya’s debt remains sustainable, the country is at high risk of debt distress.

The government has borrowed heavily to bridge the budget deficit with most of the revenue funding recurrent expenditure.

The Parliamentary Budget and Appropriation Committee wants a streamlining of government functions in the new financial year that starts on July 1.

“There is an observed overlap of functions between some spending agencies as well as between some programmes. Streamlining of functions will be crucial to eliminate duplication and reduce resource wastage,” the committee led by Kieni MP Kanini Kega says in its report on the 2021/22 financial year expenditure.

The  National Treasury equally notes that "controlling the government wage bill can yield significant savings.”

The reduction of the government wage bill to GDP will be accomplished through among others, continued restraint in hiring and wage awards (including in the four-year wage agreement that will come into effect in FY2021/22) and by improved wage-bill management, Treasury says in a memorandum to the IMF.

Cabinet Secretary Ukur Yatani has been keen to fold agencies that have remained on the exchequer's  bail-out list year in year out, with those with duplicating roles being merged to reduce wastage of resources.

According to the CS, there will also be a major restructuring in agencies that have "serious governance issues''.

The wage bill is currently at 48.1 per cent of national revenues, which is above the recommended 35 per cent. Of these, 40 per cent goes to allowances.

Government employees consumed Sh322 billion in allowances in the financial year to June 2019, out of the Sh795 billion spent on the country's wage bill for the period according to the Salaries and Remuneration Commission data.

In the current financial year, the National Treasury disbursed a total of Sh906.9 billion for recurrent expenditure by the national government in 11 months to May.

Development issues were Sh286 billion against a revised estimate of Sh401.4 billion, according to the National Treasury statement of actual revenues and net exchequer published on Friday.

A reduction in the number of parastatals is expected to come with a revision on salaries and allowances, saving the taxpayer billions of shillings.

It will also reduce pressure on the exchequer who has been pumping billions into bailing out poor performing entities, according to the treasury.

The Parastatal reforms which started way back in 2015 has faced political interference which has affected its implementation.

A Presidential Task Force on Parastatals Reforms presented its report to President Uhuru Kenyatta, highlighting major major reforms on state corporations, including rationalization to remove overlaps, duplication, and redundancies.

The task force which was led by the President's former constitutional affairs adviser Abdikadir Mohammed had recommended the trimming of the number of state agencies from 262 to 187.

In the next financial year starting July 1, recurrent expenditure is set at Sh2 trillion while development expenditures including foreign-financed projects, allocation to Contingencies Fund and conditional transfers to County Governments are projected at Sh669.6 billion.

"I have initiated a process of developing a National Tax Policy Framework that will not only enhance administrative efficiency of the tax system but provide consistency and certainty in tax legislation and management of tax expenditure," Yatani said.

Some of the ministries with a high number of state agencies include agriculture, transport, tourism, energy, industrialisation, trade and enterprise development, and sports, culture and heritage, which could face a major rationalisation.

A huge number of these entities have remained in losses or yielded low dividends for the government, forcing the exchequer to bail them out.

According to the Consolidated National Government Investment Report for the year financial year 2019/20, at least 127 state agencies out of 247 state firms reported losses in their end year results.

“Some of them have become a burden,” CS Yatani said in December when he appeared before the National Assembly Committee on Finance and Planning.

“Some will be merged, some will be dissolved and some will partner. Some we are going to work on structural reforms because, despite their strategic importance, some have serious governance issues, “ the CS said.

IMF has given the government a number of conditions which came with the approval of Sh255 billion loan, among them increasing its tax collections and address wastage of funds, mainly through corruption.