Financial discipline and renewed war on corruption key to stabilising economy

Opinion and Analysis

The shilling has continued to lose ground against the US dollar and other major currencies. PHOTO | FILE 

By KENNEDY MULWA

In Summary

• The Jubilee administration should come up with strong measures to improve the financial situation.
• Such steps should include working on reducing the rising interest rates, reducing the bloated public workforce, instilling financial discipline in public offices.
• The government should deal with perpetrators of corruption ruthlessly. The vice is pervasive and is destroying our economic fibre.

Kenya is facing a cash crunch and one of the main reasons is the huge size of government. Treasury secretary Henry Rotich has linked the problem to depressed revenue collection and the weakening shilling.

Mr Rotich’s admitting of the financial crunch calls for sober thinking on the state of the economy, from production to distribution and consumption.

The government is not facing a cash crisis, only cash flow problems. Several factors have contributed to this dire situation. First, the shilling has continued to lose ground against the dollar and other major currencies.

Additionally, the shilling has shown tendencies of weakening against East African currencies too. High debt payments, low revenue collection and expensive interest rates have been cited as reasons for the cash crunch.

At Sh132.6 billion, the debt payment in the three months to September was more than the Sh117 billion recurrent spending and nearly six times the Sh24.5 billion spent on projects in the quarter to September.

The Kenya Revenue Authority collected Sh181.2 billion in the first two months of the current financial year, which was below the expected average for the period.

Domestic borrowing is also below target because of high interest rates, while the depreciation of the shilling against the dollar weighs heavily on plans to meet revenue targets.

Currency depreciation manifests itself when the value of a particular currency slumps relative to others.

Factors such as a country’s economic environment, monetary policy and global market conditions impact currencies on a regular basis.

Additionally, major economic, social and political events can cause sudden or extended drops in currency value. Secondly tourism, which was hitherto a vital income source, has virtually collapsed.

The Al-Shabaab attacks in Mpeketoni, Nairobi’s Westgate Mall, and Garissa University have immensely devastated tourism.

These and other attacks have destroyed a sector which was doing quite well, accounting for about 13 per cent of GDP in 2013.

Thirdly, Kenya Revenue Authority (KRA) has failed to meet its tax collection target. Also donor disbursements have fallen behind schedule.

The traditional slow collection of government revenue at the beginnings of each financial year, coupled with demand for disbursement, has largely contributed to the current cash crunch.

Fourthly, corruption is quite rampant. In fact, graft in terms of mismanaging public funds has escalated in the recent past. This lucrative environment for corruption should be dealt with

Corruption became more rampant when county governments became operational, taking greed to new heights.In the new governance units, governors who fail to heed to members of county assemblies’ greedy demands are threatened with impeachment.

The central government should sort out this mess by ensuring that the crooks are made to account for their actions.

It should also reduce the bloated public wage bill and the number of constitutional offices.

The inflated workforce has multiple effects on the economy since 60 per cent of revenue collected each year is paid to government employees.

On the other hand, the Ethics and Anti-Corruption Commission (EACC) should be given prosecutorial powers to enhance the enforcement of its investigation.

EACC should investigate any information or allegation of corruption, prosecute and have power to institute criminal proceedings against any person before any court.

It is embarrassing to witness county governments buy wheelbarrows, bar soap and mobile phones at exorbitant prices that run into hundreds of thousands of shillings.

These daylight robberies are draining government coffers. The runaway greed has triggered an unnecessary spending spree in both the national and county governments.

Projects of little value addition are rampant. They include non-essential foreign trips, seminars and worthless ‘‘development’’ ventures — leading to grave waste of government funds.

When all is said and done, the Jubilee administration should come up with strong measures to improve the financial situation.

Such steps should include working on reducing the rising interest rates, reducing the bloated public workforce, instilling financial discipline in public offices, and reducing excessive expenditure in both the central and county governments.

Fighting corruption should be done from within, by people who know and understand government operations.

It is insiders who know the lapses and loopholes that create opportunities for abuse of office and corruption. Outsiders do not; but they can support our war on graft.

Above all, the government should deal with perpetrators of corruption ruthlessly. The vice is pervasive and is destroying our economic fibre.

Dr Mulwa is a business consultant.