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September 19, 2018

Government not broke, should be more prudent

If you have read the news recently, you have heard the noise: No, we definitely have no extra money for teachers, even if this was a pay deal agreed three administrations ago.

Yes, we definitely had money for overpriced wheelbarrows – just one of the many ridiculous procurement scams that go on every level of government, country and central. They of course include the slush funds that are the Constituency Development Funds that were declared unconstitutional a while ago.

Yes, we certainly had piles of money for MCAs to travel the world on ‘bed-marking trips’. Paying contractors for services to the government.

Maybe, maybe not. The government has asked county governments to get in touch with their commercial banks as the government itself is currently slightly incapacitated and also couldn’t pay parliament’s power bill. But parliament will certainly consider a pension for MPs because they suffer so much already. There is so much more of this that it’s unbelievably tiring to even try to stay on top where the Kenyan citizens are being ripped off.

There are signs of government not being able to meet its financial obligations in time, accompanied by some hectic financing activity: domestic borrowing so interest rates have shot up above 20%, and negotiations for another syndicated loan of around $750m is ongoing – roughly the amount that part of the sovereign bond receipts sought to retire.

And some worrying bits of information on the sovereign bond itself: the receipts would have had to be deposited in Kenya’s consolidated account, but instead, the media report, the money was in an offshore account that nobody really knew much about.

Even though the money had been raised in the past fiscal year, it had only been booked in the current fiscal year.

Finally, when thinking about Kenya’s foreign debt, remember the decline of the shilling this year and how much that pushes up interest payments.

The Auditor General Edward Ouko had warned the government that borrowing was getting out of control. Earlier, he had pointed out that pretty much all of the spending of the preceding fiscal year had not been accounted for properly.

So far, the Treasury mostly just disputed that the Auditor General knew what he was talking about – a daring statement, given that this is the man who has actually gone through all the books.

If those books are so misleading, then where are the real figures? Why and how would the Treasury know the real figures, but not have them reflected in official accounts?

Remember that Treasury had planned a fiscal deficit of 8.7% for the current fiscal year. That is hefty. And you would think that with such an outlook, you would be particularly careful to make sure that money is spent sensibly, and revenue collection hits the targets. While doing this, you should bear in mind that there are things that could go wrong: another security hit affecting tourism, or adverse weather that affects agriculture.

Do we see any such prudence? No, but we do see low revenue collection.

The Star wrote: “The government has used almost half of the revenue collected in the last three months to service the public debt, Parliament's Budget Office has announced. According to a report presented to MPs, the total revenue collected by the government by September 30 was Sh269.7 billion against a target of Sh421.3 billion.”

So what exactly is going on? Just a temporary cash crunch, or a lot of red flags that something is far more substantially?

One of my finance friends assured me that Kenya wasn’t broke, but admitted that public finance management was not very good at all. He argued that the situation ‘just’ needed some control of the corruption.

Technically, that is of course correct. But have we seen any signs that there is the political will to make this happen? None. Not at the central government level. Wasteful spending and outright theft also seem uncontrollable at the county level.

Mandera Senator Billow Kerrow pointed out there are a number of large-scale projects that will need more funding to be completed – and we know that a percentage of each of these budgets will be eaten. So we are looking at a government that struggles to meet current obligations, can’t or won’t control waste and theft, faces a rapidly rising debt and possibly the need to borrow vastly more to finish large projects.

After being questioned by Parliament’s Budget Committee, Treasury CS Henry Rotich has now finally reacted with an explanation other than accusing people of not having the right numbers: that commitments to large projects that have to be paid up front at the beginning of the fiscal year are the culprit for the current cash crunch.

He also promised to cut down on foreign travel spending on both levels of government and institute austerity measures.

Too little too late, I felt.

 

The writer is an independent country risk analyst.

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