ON THE CLIFF

This is no constitutional moment but time to salvage economy

BBI a useless political project. Debt morass result of misguided, reckless and irresponsible political policy decisions of the President

In Summary

• Kenya’s economic problems are not economic in nature. They are political.

• Uhuru must focus on leading the country towards an economic stabilisation and recovery path and not useless political projects such as BBI that many Kenyans oppose.

Graph showing Kenya's surging debt.
DEBT: Graph showing Kenya's surging debt.
Image: COURTESY

It is official that Kenya is in a debt trap. The total national debt incurred in during President Uhuru Kenyatta's tenure is indeed a big cumulative shock as a result of poor decisions.

Constitutionally, the buck stops with the President as it is through his bad statecraft that the debt has propelled the economy onto a cliff.

The country is now pulling the economy out of the deep ditch of the economic crisis, which will undoubtedly require painful and hard decisions. 

Kenyans are reeling from a shrinking economy.

They have diminished disposable income, even as the government spends billions of shillings on recurrent costs annually. Access to essential services is out of the reach of many Kenyans.

The Jubilee administration is the only government since Independence that has massively borrowed and burdened the country with valueless debts, while making Kenyans poorer and hammering the economy.

Kenya’s trade balance with Africa is negative for the first time since 1999. Private investment is negative, leaving the sector with little or no credit.

Banks are beholden to the government due to their crazy internal borrowing. Huge loans taken for public investment have had zero returns.

Did the country get here by mistake? No!

It is a consequence of misguided, reckless and irresponsible political policy decisions of the chief executive of the country.

In the last eight years, the country has had an utterly incomprehensible debt-propelled economy and zero return benefit from infrastructure sprees driven by concealed high levels of corruption, kickbacks and inflated costs.

President Kenyatta and his court jesters of 'Yes, Yes Sir'-advisers having failed to wean political policy decisions off it, the country now has to face the consequences and the task of cleaning up its results.  It is going to be an immense herculean task.

There are two basic operating factors that have driven the country into this mess outside political decisions.

First is a government addicted to deficit spending, running an expenditure deficit of between seven and eight per cent of GDP. This was going to burst.

Second is a financial industry apparently feeding on the trough of government debt.

Sir Isaac Newton’s law of motion holds that an object will continue moving in the same direction, and with the same velocity unless it is affected by an external force.

Unfortunately, this is clearly the true state of Kenya’s economy.

Maximising the effectiveness and efficiency of expenditure means securing the greatest value from spending decisions and avoiding waste, errors, fraud and corruption.

The capacity of each government to deliver on its political programmes and strengthen the economy depends not just on the resources at its disposal, but also on how they are used. Prudent use has not been the case.

And Kenya’s economic problems are not economic in nature. They are political. Also, this economic muddle has not just been created by the Executive alone.

Parliament has been an integral part of the problem.

It has failed the Constitution and Kenyans by failing to exercise its constitutional role of controlling and regulating the wanton borrowing and spending binge of the Executive.

So, this cannot be a constitutional or Mandela moment for Kenya. It is a desperate economic recovery moment. It is time to salvage livelihoods and the country’s economy.

President Kenyatta must admit his government has made costly economic and fiscal policy mismanagement decisions.

He must focus his remaining short time in office to lead the country towards economic stabilisation and a recovery path - and not useless political projects such as BBI that many Kenyans are opposed to.

WHAT NEEDS TO BE DONE

The country needs an economic stabilisation and fiscal consolidation plan that includes negotiating with creditors to suspend debt servicing for at least three years.

Even with creditors having given a debt payment temporary relief up to June 2021, it is certainly not the end of Kenya’s economic problems.

Rather than being seen as a cure, it is more of a bandage that allows the country time to pursue a more lasting treatment for its debt and economic ills.

Beyond the immediate debt problems, the country has basic economic problems to contend with. The road ahead remains long and treacherous.

The Executive needs to overhaul the current Third Medium Term Plan 2018-2022.

The preexisting economic conditions, Covid-19's devastating effects,  the shrinking revenue and debt nightmare have made it irrelevant and redundant.

The National Treasury must prepare and present to Parliament an interim transitional mid-term framework plan and budget for the 2021-22 financial year. This process must also be done by the county governments with public input.

The new Medium Term Plan will inform subsequent planning and be guided by the principles of zero-based budgeting to ensure the country drastically reduces all expenditure it can no longer afford.

Counties must be the central drivers of new MTP because social and economic devolution is about people managing their local development and setting their own development priorities.

The new MTP must reflect the constitutional reality: failure to restructure, align and reorder the old order system of national planning and economic policy poses the greatest economic and financial risk to the country. This is exacerbated by huge debt distress and budget deficit.

The National Treasury bizarrely prepared a budget that was completely unhinged and divorced from the reality of the devastating Covid-19 pandemic.

The 2020-21 budget ought to have been informed by realities of the need to spend public funds on Covid-19 and its socioeconomic impacts response. This is what responsible governments are doing the world over. Unfortunately, the supplementary budget tabled before Parliament has adopted this business-as-usual continuity.

There is an urgent need for the Treasury to open the debt register to an independent international forensic audit to see the debts that are genuine, and those that were pocketed.

The audit will ascertain the true situation before the debate on raising the borrowing ceiling can progress. It's foolhardy to proceed with setting the borrowing ceiling without a clear debt picture of implications for the economy.

The audit of Kenya's public debt will further spotlight the real amounts involved, the creditors and the payment period.

The government should also publish in detail all information about the public debt for the knowledge of Kenyans, for it is they who will have to pay back.

Kenyans must reach a consensus with Parliament before any agreement on the borrowing ceiling is approved or rejected. This will enable sound debt management.

The national and county treasuries must also develop and enforce public expenditure and financial accountability tools to deliver on three main budgetary outcomes — aggregate fiscal discipline, strategic resource allocation and efficient use of resources for service delivery.

It is impossible to return the economy and lives of Kenyans to where they were before Covid-19. However, Kenya needs to forge a new economic and fiscal social compact.

This will require intensive participation and consultation between Kenyans, business, two levels of the government, media and civil society to rebuild a more productive, equal and prosperous society.

Writer is executive director, International Center for Policy and Conflict, @NdunguWainaina