President Uhuru Kenyatta witnesses as H.E Mr. Guo Huncheng, Chinese
minister for Commerce and Cabinet Secretary for National Treasury Mr.
Henry Rotich exchange documentation of three financial agreements they
signed at State House, Nairobi last year. The National Treasury is faced
with tough economic choices in the New Year as the government seeks to
run against time in fulfilling its recurrent expenditure obligations
with an overstretched needs purse. PHOTO | PSCU
The National Treasury is faced with tough economic choices in
the New Year as the government seeks to run against time in fulfilling
its recurrent expenditure obligations with an overstretched needs purse.
This is complicated by the rush to implement flagship mega projects to the tune of trillions of shillings.
In
political terms, the New Year, observers agree, is the “make or break”
year for the Jubilee administration, which will be subjected to a
General Election next year.
It is during that election
that Kenyan voters will give a score card for varied promises made by
the President Kenyatta administration.
More importantly
in economic terms, however, experts say that the stakes for the
economic managers of the country are higher as the economy will not be
spared from the shocks of the global economy.
“The
shilling may resume its loss of value against the dollar (and other
major global currencies) due to the surge in imports, our inability to
increase export earnings, and the sluggish growth in tourism. Government
at national and county level will have to cut down on spending to
reduce the public sector deficit running at an unsustainable 10 per
cent. That will be really difficult to do as we go into an election
year,” says economist and University of Nairobi lecturer Prof Michael
Chege.
The past two years were marked by tough spells
for the Treasury as economic shocks took a hit on the economy, impacting
negatively on the taxman’s ability to collect much needed revenue.
Notably, the Treasury struggled to honour some of its crucial obligations in health and education sectors.
Granted,
a glimmer of hope for the struggling economy was reported in the
twilight of 2015 with government data showing the economy expanded by
5.8 per cent during the third quarter of 2015 compared to 5.2 per cent
recorded during a similar period in 2014.
Cabinet
Secretary Mr Henry Rotich has said that to safeguard the gains, the
Treasury will this year “continue to be prudent” in its fiscal
programme.
FAVOURABLE WEATHER
“Looking
ahead in 2016 and near-term, our economy will remain resilient and we
should see our economy growing by at least over 6 per cent on the back
of favourable weather, recovery in tourism, and continued strong
investment as the business environment improves. Completion or
near-completion of several infrastructure projects initiated by the
Jubilee administration including the standard gauge railway should
accelerate growth.
We will continue to be prudent in
our fiscal programme ahead of the General Election. In sum, I am
sanguine about our growth outlook and that key Jubilee programmes will
be attained,” Mr Rotich told the Sunday Nation as the year closed.
But
experts say the Treasury must do more in balancing the need for
executing its money hungry fiscal programmes based on the prevailing
tight conditions.
For starters, faced with the
monumental need for additional capital to implement the crucial
projects, experts say the Treasury must reject the allure to continue on
a debt spree as this will strain the country’s fiscal position even
more.
The Treasury estimates it requires Sh5.8 billion to fund several mega projects which are ongoing or set to start this year.
They
include the Sh2.1 trillion standard gauge railway whose first phase is
65 per cent complete, the 10,000 km road project and the Sh400 billion
one-million-acre Galana-Kulalu irrigation scheme among others.
According
to Ernst & Young Tax Partner Francis Kamau, the country’s debt has
hit crisis levels and it would be imprudent for the Treasury to saddle
Kenyans with more debt.
PERCENTILE POINTS
“At
the current total debt levels of Sh2.934 trillion, which represents
51.9 per cent of the Debt to GDP ratio exceeding by 8 percentile points
the ideal 45 per cent ceiling set by the Treasury, the Government needs
to worry about adding on more debt,” said Mr Kamau.
On
the other hand, Mr Kamau warned that increasing taxation would mean more
pain for Kenyans, a route many other observers maintained the Treasury
would be reluctant to take with a looming election.
“We
have reached the zenith of taxation for this country. The Government
can only increase its tax base but not its taxes,” asserted Mr Kamau.
Mr
Kamau offered that the country and the Treasury is faced with three
options as it strives to honour its budgetary and financial obligations.
“One
of the preferred options is to reduce wastage of public resources. The
second option is to eliminate graft and the third option is to decrease
the size of government through a constitutional referendum,” said Mr
Kamau.
According to him, Kenya is over- represented
politically and this has the economic consequences of draining public
coffers through a bloated government.
“Democracy is expensive yes, but it is time Kenyans vote to cut the size of government,” said Mr Kamau.
Already suggestions have been made by sections of legislators on the best way to do this.
A
prominent proponent of this route is Gatundu South legislator Moses
Kuria who has made suggestions for the slashing of the size of elected
public officials.
Mr Kuria has argued that the country’s government structure is bloated and ineffective, requiring urgent resizing.
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