• To begin with, we must reschedule our debts by negotiating with our creditors, especially the commercial ones
•There is also need to ensure public projects are well cost to ensure proper projection on return on investment
By now, many Kenyans know that we are not doing well economically due to massive borrowing for the last couple of years.
It is not certain exactly how much we have borrowed since the public debt register hasn’t been made public and when so, the amount of money borrowed is way past what has been declared publicly.
With an estimated nominal GDP of about Sh9.8 trillion (roughly $100 billion), Kenya needs to rethink its economic trajectory going forward. The realistic projection of the amounts of money that we are collecting per year is Sh1.6 trillion, translating to about 15 per cent of the GDP. It also means that we collect on average Sh130 billion per month.
However, our total expenditure is Sh236 billion with Sh52 billion going to salaries, Sh50 billion to operations and maintenance, Sh26 billion to the counties and Sh83 billion to debt servicing.
We have a deficit of about Sh100 billion monthly and 66 per cent of our revenue goes to paying debt! If we continue this way, we will surely default on our debt between September this year and June next year. The government is intending to borrow over Sh700 billion from the domestic market this financial year alone, thus wiping out any money that should be available to Kenyans with good business ideas, or those who need to scale up.
So what needs to be done to save the situation?
To begin with, we must reschedule our debts by negotiating with our creditors, especially the commercial ones, which can be bought off using the longer term ones under the IMF and world bank to reduce the pressure for payments due within five to six years at a higher interest rates.
There is also need to ensure public projects are well cost to ensure proper projection on return on investment as a means of servicing the very debt that was procured by the same infrastructural project (s).
Second, there needs to be serious budget cuts, especially on salaries, operations and maintenance and new development projects. About 30,000 public servants are set to retire by June this year. Instead of employing the projected 18,000, there is need to first and foremost redeploy sectors that have bloated workforce both at the national and county levels to the vacancies created. Skills gaps can be leveraged through training as well. This will save the government lots of much needed money.
Further, the SRC needs to be bold enough to rationalise and harmonise allowances, including consolidating many of them to reduce wastage. The current wage bill can easily be reduced from Sh52 to about Sh35 billion.
It’s inconceivable to see that Sh50 billion is spent on O&M, which basically means the many luxurious facilities enjoyed by many officers such as vehicles etc. Through various circulars in the public service including regulating depreciation calculation, this can be reduced considerably to save up to Sh25 billion.
It is instructive to note that there is no need of starting new government projects. The best thing is to review and rationalise the ongoing 8,000 of them with a view to finishing them to not only fast track their delivery, but also to unlock a lot of investors’ money pent up in pending bills. Government should be restrained from borrowing excessively domestically through capping either as a percentage of the deficit or a blanket figure say Sh300 billion that can be reviewed through the three-year Medium Term Expenditure Framework that should robustly be re-introduced.
The other most important thing to do is to simply reduce the budget deficit since its always imaginary and results from spending money that you don’t have. The fact that this is rolled over to the next financial year means the government can only borrow all the more.
While the National Treasury has implemented the principle that any state project must have been in the budget, this doesn’t always translate to funds being available. This can be cured the Rwandan way, whereby each project or activity must have its monies ready and in full before implementation begins.
The habit of starting projects using a budget that hasn’t been fully financed is the big elephant in the room, as people have wish lists for a budget that aren’t connected to the felt needs of the common mwananchi. They simply want to steal through development corruption.
Another important aspect is the size of government. We are running a very expensive system of 48 cabinets, legislatures, bureaucracies etc, over and above 247 state entities.
While the country wasn’t bold enough to reduce the counties from 47 to about 16 in the BBI, certainly state agencies can be merged to remove those at are duplicating roles and further, a sunset clause be part and parcel of each legislation that created them.
In 10 years, there should be a mid-term review and that any agency should wind up after 20 years since this is the average time you need to resolve a problem. Any successor agency must always be approved by Parliament.