Why Treasury needs to re-evaluate public spending

Friday, March 26th, 2021 00:00 |
World Bank. Photo/File

Back in the day, World Bank officials used to tell a story about an eastern European country that was struggling to contain its inflation rate without much success. 

With time, it became increasingly difficult for its government to meet its financial obligations – such as paying civil servant salaries – and it resorted to printing more money.

However, as more money was printed, inflation worsened. One day, however, the printing machine broke down, and by some stroke of magic, the vicious wheel of inflation grounded to a halt.

Well, it was not magic. When the government could not print any more money, it started implementing other fiscal policies.

Kenya is facing a near-similar situation with its debt problem. Only this week, one Kenyan newspaper reported that between December 30, 2019 and December 30, 2020, Kenya borrowed on average Sh3.37 billion daily.

That is a humongous amount of money considering that the late John Michuki once said that a child born today, would need 35 years doing nothing else to count from one to one billion.

So bad has Kenya’s borrowing situation become that for the first time in our history, Treasury is spending more on debt repayment than on recurrent expenditure; and this at a time when revenue collection has taken a hit from adverse economic effects of Covid-19 lockdowns.

About three years ago, Treasury estimates presented in Parliament indicated that on average, Kenya was borrowing about Sh800 million a day.

The jump to Sh3.4 billion is therefore cause for pause, and Treasury for once needs to stop digging and start thinking what needs to be done to avoid sinking lower into debt and to ask if that path we are on is sustainable.

Although this is coming as too little too late, it is commendable that government has whittled down the hundreds of allowances it used to pay its workers. For over 15 years, these allowances have been a drain on public finances.

That we have over 200 different types of allowances, in a developing country, is in itself a serious indictment of our public service culture.

As has been pointed out before, in more developed economies, public service is just that – public service, not an avenue to riches. 

For instance, when German Chancellor Angela Merkel retired earlier this year, there was not much fanfare about it.

Indeed, the people in Nairobi who can name her successor can be counted on the fingers of one hand. 

In Africa, such transitions would generally be costly affairs, involving profligate government spending on transition arrangements and perks for retiring officials who have to be coaxed to give up power.

For instance, when retired president Daniel arap Moi died, Treasury started saving Sh100 million a month that had been allocated to his office. This is higher than all emoluments paid to serving heads of State abroad.

The point I am trying to make is that, government must be rational in its allocation of public resources.

For far too long, we have talked about reducing wastage, tackling corruption and profligate spending, but it has been all talk and no action.

Indeed, were it not for Covid-19, the large sums that public officials were spending on benchmarking trips abroad, would have continued to gobble up huge chunks of public finances.

Even in times of Covid, it had to take a presidential directive to stop senior government officials from travelling abroad, often with large retinues of hangers-on.

In 2000, average debt per citizen stood at about Sh38,000. Back then, this appeared to be a large amount, given the levels of corruption perpetuated during the Kanu administration.

Today, given that public debt stands at about Sh7.1 trillion, every citizen owes on average Sh148,000.

This raises difficult questions about what legacy Jubilee is set to bequeath future generations if already, every child being born today, in addition to the numerous challenges they face, also inherits a portion of this debt.

There is, therefore, urgent need to recalibrate government spending and review budgetary priorities. More importantly, it is urgent to punish severely – – public officials and private enterprises found guilty of misappropriating tax money.

Unless it becomes unfashionable and painful to divert public resources, Kenya will continue bleeding money and sliding down the rankings of poor, highly indebted countries.

The writer is a partner and head of content at House of Romford —  [email protected]

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