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February 22, 2019

The Five Pillars Of The Budget Policy Statement

EXPANSION: The new Terminal 1A at Jomo Kenyatta International Airport in Nairobi. Infrastructure projects are key to development. Photo/File
EXPANSION: The new Terminal 1A at Jomo Kenyatta International Airport in Nairobi. Infrastructure projects are key to development. Photo/File

On Monday the approved Budget Policy Statement was forwarded to Parliament for debate as required by the Public Finance Management Act, 2012. But what exactly should we be looking for in a good Budget Policy Statement?

A good BPS is one that ensures that investment in growth and opportunity are compatible with putting the nation’s finances on a strong and sustainable path.

It is one that tackles the greatest challenges facing the economy in the most efficient and productive way in order to maximise impact.

To do so, policy decisions need to be based on research and evidence so that the government can do more that works and less of what does not work. At the same time, it ensures that wasteful spending in all its forms, including corruption, is eliminated.

Three years through the economic transformation agenda, it’s time we evaluated whether the transformation is happening in a realistic manner.

This way, we can decide whether or not we are on course and we need to re-emphasise it as outlined in the policy paper. Otherwise, perhaps there is need to change course altogether and look at things differently.

The BPS outlines five pillars through which it is expects the economy to maintain a positive growth momentum as well as build resilience to both internal and external shocks. It also aims to minimise poverty through job creation and to solidify Kenya as a middle income country.

One of the key criteria for measuring the success of the policies is therefore the unlocking of the employment freeze in the public sector, and increased employment in the private sector.

The first pillar is to create a conducive business environment by tackling security and maintaining macroeconomic stability. Businesses and households will be looking forward to lower interest rates, a stable foreign exchange rate and low inflation in order facilitate growth and have an affordable cost of living.

A facilitative business environment will support businesses to create the one million jobs per year promised by the Jubilee Administration and the expansion of the economy.

With the growing population and more young people accessing higher education, the need to create jobs continues to be one the greatest challenges to be addressed now and going forward.

Security concerns continue to negatively impact businesses, with the tourism sector severely affected by the threat of terrorism and negative travel advisories from key tourism markets.

Besides tourism, local businesses and households spend heavily on security at the expense of value adding investments. We have to wonder what alternative investment would be made with the thousands of shillings currently used to erect boundary walls and burglar proof windows that have become the norm. Insecurity may also curtail investment altogether by making certain places uninhabitable.

The second pillar is on infrastructure expansion to build on competitiveness and facilitate economic transformation. This includes public investment in road, rail, energy and water supplies.

So far the pace of infrastructure development in all these areas has lagged behind the demand and greatly constrained economic progress, increased the cost of doing business and confined many people in poverty.

Farmers need to move their produce to markets in a fast and efficient manner to cut post-harvest wastage and maximise on productivity.

Workers and children in major urban areas like Nairobi need to reach their places of work and school on time without wasting productive hours in endless traffic jams. In order to build on the export market, both internal infrastructure and external trade networks such as efficient ports and airports are needed.

The current prioritisation and massive commitment on infrastructure projects by the current administration is commendable, and if well implemented without significant leakages, has the potential to facilitate the envisaged economic transformation.

The major infrastructure projects under implementation include the Northern Corridor Transport Improvement Project, the East Africa Road Network, the South Sudan Link Road, the Standard Gauge Railway, the additional Terminal 1A at the Jomo Kenyatta International Airport, the modernisation of the Port of Mombasa, the Lamu Port and Southern-Ethiopia Transport project, and a refocus on increasing energy production.

Pillar three focuses on sectorial policies including agricultural, manufacturing, and tourism recovery, sports culture and arts.

The Kenyan economy is primarily agrarian although agricultural productivity has faltered over the decades for both cash crops such as coffee, tea and pyrethrum as well as food crops such as maize and rice.

Even with 70 per cent of households living in rural areas, majority are not able to produce enough food to feed their families, for one reason or another.

Unless significant focus is put into agriculture, especially enabling households in rural areas to be food sufficient, the future food security of the country may not be assured.

Similarly, manufacturing sector, which has the capacity to create the most jobs at a faster rate than most other sectors, has been on a declining trend over the decades.

The growing import of cheap merchandise from China and other Asian countries has made production even for local consumption uneconomical, and also reduced export prospects for locally manufactured goods. This pillar is enormously critical for any economic transformation to occur.

The fourth pillar deals with the social sectors; including health care, quality and relevant education for all Kenyans, empowering youth, women and persons with disabilities, environmental conservation and scaling up social safety nets.

These are areas with universal impact, they are critical social equalisers and have significant impact on the future of the country and can only be sustained by continuous investment.

The fifth and final pillar deals with ensuring devolution works for better service delivery. Counties are becoming the new centres of economic activity and engines of economic progress.

Increased allocation of shareable resources is envisaged to spur development in the counties.

This is expected to go hand in hand with steps to strengthen accountability and fiscal discipline in the use of the resources.

The BPS makes a great attempt at capturing the various aspirations of businesses and households, and is potentially transformative and well thought through.

The challenge remains the ability to move past the good intentions to implement the policy footprint for a truly economic transformation agenda to be realised.

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