Austerity plans tend to be double-edged – Treasury CS Yattani
The austerity plans announced by acting Treasury Cabinet secretary Ukur Yattani have seen government freeze hiring for the next three years to curtail the ballooning public wage bill.
In one single swoop on cash flow, government agencies are now staring at significant budget cuts. Funding will undergo more stringent approval conditions before any cent is released to ministries.
While this sounds like a grand idea, with Yatani saying the intention is to ensure such funds are ring-fenced for the Big Four agenda, the move raises serious questions and concerns.
In hindsight, the CS should not forget that some fundamental drivers not only face being stymied by such a move but could turn into a major drawback in efforts to grow the economy.
For a start, the government is the key driver of growth because of heavy public investments and consumption. A World Bank report released recently reveals that the public sector’s contribution to the growth of Gross Domestic Product more than doubled even as that of the private sector diminished.
The public sector contributed more to GDP growth compared to 1.1 percentage points five years ago as the private sector’s contribution to the GDP growth declined.
It is obvious that the rise in the public sector contribution to the GDP is as a result of an expansionary fiscal stance that raised both State consumption and investment as the budget ballooned to Sh3 trillion in 2019/20 fiscal year, this never changed.
Therefore, as Treasury targets cut even for consumable goods, staff upgrade, ICT equipment and funding for parastatals, it is not very clear where Treasury expects the new growth to come from in the short term.
It even goes against a call by the CS to build on the progress made so far as the State confronts unemployment, poverty and inequality because most of the targeted areas are likely to lock out more SMEs.
More importantly, by ring-fencing cash for the Big Four agenda, it means since most of the projects are long term and could take longer to actualise, more people could suffer in the short term. All the housing, manufacturing, agriculture and health projects might not take off in the short term.
Coming at a time when the country has witnessed a dip in Foreign Direct Investments, the short term effect in dousing the only growth areas with funds which will affect the common man.