Treasury Secretary Ukur Yatani told Parliament this week that he had no option than to make major cuts on the development budget for this financial year. It is the latest admission by the National Treasury about the crippling cash-flow problems the government is facing.
The minister has been forced to change spending plans and to re-prioritise to reflect the situation he faces. If the situation gets worse, the cuts may affect critical programmes, including the politically-sensitive Big 4 agenda projects.
We are back to budgeting as practised during the Moi years. In those days, the government would impulsively respond to expenditure shortfalls by massively cutting into development expenditure. The upshot was that for a very long time, we did not have a development budget to talk of, leading to stunted growth.
Cutting development expenditure in this way has another major negative impact: you find yourself in a situation where you cannot spend a cent of the hundreds of millions on projects co-financed by the government, bilateral donors and multilateral lenders. This is because disbursement of funds from donors and lending institutions is usually made conditional on the government releasing counterpart funds. Under former President Moi, the development budget could not be disbursed at all. We only started spending again when the Narc government came to power in 2003. The Moi era was a fiscal regime characterised by soaring borrowing and massive expenditure especially on infrastructure. It was a low-growth and low-investment economy.
In the 2003 budget, then Finance minister David Mwiraria implemented a monetary stimulus by massively reducing the cash ratio and pumping billions into the market. The rate on the Treasury Bill that had consistently been at double digits before 2003 crashed to below one percent in 2004. The risk-averse banking sector that had been accustomed to making huge profits from lending to the government through Treasury Bills was forced to learn how to lend to wananchi.
But even as Mr Yatani engages in pruning this financial year’s development budget, you will see that budgets of ministries that traditionally hog a large share of the budget like Interior Security, Department of Defence and NSIS will hardly be touched.
I have never understood the logic or the economic justification in continuing with huge allocations to departments for some of these favoured ministries.
Where is the logic in a tradition where ministries and departments that have opaque budgets that are hardly audited are -year in year out- given disproportionately larger budgetary allocations than ministries and departments with better wealth-creating potential such as the Ministry of Agriculture and Livestock Development? Why is it that we keep giving lip service to agriculture and manufacturing? A recent study that conducted a line by line scrutiny of votes and allocations for food and nutrition- by looking at the current Budgetary Policy Statement came to the conclusion that – even after the launch of the Big 4 agenda, Kenya’s spending on food and nutrition was still at a mere 3.4 percent of total expenditure.
According to that study, this level of spending is way lower than the target set by the Maputo Declaration- to which Kenya is a signatory- and where African governments committed to allocate 10 percent of their total budgets to food and nutrition security.
Granted, security, roads, education and health- what budget makers have christened as ‘enablers’ will remain high on our list of priorities for a long time.
Yet without a complete re orientation of spending priorities, without focusing on a few core areas and without making significant cuts in some of the non-priority expenditures, the economy will just keep bumping along.
Also, we will need to grow out of the obsession with the so-called mega projects. In the first place, these are mega projects that serve to saddle future generations with expensive Chinese debts. Secondly, the main reason they rank high in our spending plans is because the political elite like them because they offer wider rent-seeking opportunities.
Why else would agriculture and manufacturing be progressively alienated when budgetary resources are allocated?
It is because resources have to be removed to departments implementing mega projects with big opportunities for economic rent.
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