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AAK November newsletter 2015

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Score Card: Is the State Borrowing To Deliver Basic Services?

In a rush to become an upper middle income economy, the Kenyan government has developed a high appetite for resources to finance massive investments in infrastructure. The LAPSSET Projects, expansion of JKIA (Green Field project) Expansion of Mombasa Port and other coastal ports and the Standard Gauge railway are but some of the government Vision 2030 investment projects that require massive resources. This development vision nevertheless should be realized sustainably. More so it is useful to interrogate this development ambition against economic imperatives that do not end up worsening the lives and conditions of those already living in poverty and exclusion

In 2014, the Government went for Eurobond which was meant to reduce the interest rates, prevent external borrowing and strengthen the performance of the shilling in the forex market and overall check against inflationary trends to curb against increased costs of goods and services including spiralling interest rates to Kenyans. However, one year down the line, there is little to celebrate; It is useful to point out that increases in costs of living is exacerbated by increased taxation, low income opportunities and a cut back on provision of basic services that otherwise serve as social protection to those living in poverty and exclusion.

It’s increasingly becoming hard to sustain the wage bill and resource distribution in the country, which the Government claims to take up to 52 percent of the national budget.

 If nothing is done, then Kenyans will be forced to pay more taxes to cover the Ksh 600 billion budget deficit. This will come, particularly from Value Added Tax (VAT), which currently stands at 16 percent. The income tax and PAYE may not be spared either. But this is not the main issue. Key challenges that require immediate redress relate to government financing for basic services such as health, education, water and sanitation, emergency response, among others. The media has consistently carried news of public servants union leaders complaining of delayed salary payments to some of their members, hence strikes have been common   these days.

Governors have complained of slowed and delayed disbursement of funds meant to meet service delivery objectives at the Counties. This is a worrisome trend!  Questions about how government spends borrowed money have been rife.

Conventionally government borrowing was assumed to be for purposes of financing development budget deficit but it is   slowly emerging that this will now be used to cover recurrent expenditure owing to revenue shortfalls by KRA. In other words Government is borrowing not only to meet the development aspiration but also to meet budget shortfalls in delivery of basic services. For an outsider it is difficult to apportion the spending of loans between recurrent and development objectives. It is more difficult to isolate proportion of loans going to capital  investment and those going to short term development objectives. It is clear that more borrowing will be required if the current rates of completion of major projects is anything to go by. Government and public opinion on whether Kenya is currently oversubscribed on loans is divided. The current and future borrowing will jeopardize the lives and livelihoods of Kenyans. Of course worsening the situation is wastage and expropriation of resources meant for development at all levels of governments.

Kenya has come a long way to become a middle income country and these efforts are likely to go off the drain if the government does not take responsibility for its borrowing, priority setting and spending. The reported runaway corruption and corruption cartels by the media must be abolished at all levels of government.

Solutions in addressing the current situation are multi-faceted; address the reported runaway corruption that is leading to haemorrhages of public resources; rationalize the appetite for borrowing for capital investment with current realities in the country; and eliminate State inefficiencies in the utilization of resources. Through legal and deliberate political action, seal all illicit cash outflows as a result of tax evasion and illegitimate tax treaties that deny the country Billions of dollars.

With the above sitting facts, we worked with a team of journalists to do a news item at our LRP’s on the effect of the government ‘been broke’ and its effect on the delivery of basic  services. This got national coverage on K24, 7pm news on 8th November.

The underlying national realities closely informed the theme of the month on disaster preparedness which is neatly designed from access to resources to arm the country against disasters. Have a good read!                                             

Kenyatta Maitha