Why spending is the elephant in the room

It is 25 years since I was first involved in analysing Kenya’s national budget. In days past, nobody talked about public spending; our eyes and ears were focused on tax proposals. Everyone viewed the Finance minister’s “budget briefcase” as a magical mix between a “Pandora’s Box” and “Aladdin’s Lamp” of tax woes and wishes; few were interested in the expenditure debit side as the basis for these taxes.

That’s all changed now. Expenditure and debt are the big news these days. Tax continues, like death, to be an inconvenient truth, and much of the better analysis I read these days comes from the big law firms, not just the accountants. With our 2010 constitution, Parliament makes the budget; Treasury is a data secretariat. If we had gone ‘full monty’ on our US-style constitution, that secretariat role might have been for an Office of Management and Budget located in the Presidency (wasn’t there an idea like that a while back?)

Let’s get to this Budget 2020/21 process. Ministries reviewed and updated their strategic plans in August. Treasury compiled a budget review and outlook paper in September. Sectors prepared programme and resource bids in October, and these were shared with the public in November. Treasury slashed these bids right back to the original outlook ceilings in the February budget policy statement.

Ministries prepared their budgets in April. Treasury consolidated the executive budget and submitted it to Parliament, even as Parliament and Judiciary submitted their own budgets. The Executive Office of the President threw in a stimulus package. Treasury published a couple of tax-changing bills, one of which is now law. Parliament amended the budget. Treasury read the amended budget yesterday.

The 2020 Finance Bill is still up for discussion. Great “back room” stuff at the end of the process, with no public consultation in these Covid-19 times. And we’ve not even got to counties and their own budgets.

I’m writing before the Budget Statement is read. We know the numbers. We’re now the third largest economy in Black Africa (this is George Floyd week, so let’s not use cold-blooded terms like “sub-Saharan”). We contribute four percent of the overall continent’s output; the Nigeria-South Africa “combo” accounts for a third. In PPP terms (adjusting for local living costs), we’re still sixth, behind the two giants and Ghana, Ethiopia and Angola. We’re rank fourth on the continent on ease of doing business, behind Mauritius, Rwanda and Morocco. I guess some of this was in the speech.

On the budget itself, our debt service accounts for a third of the (net) budget, while mandatory consolidated fund services (including pensions and constitutional offices) consume a third of gross. Self-same debt service gobbles up more than half of ordinary revenue, which itself falls short of recurrent spending, that is daily running costs. That’s as close as one gets to borrowing for consumption. In reality, our big fat spending isn’t citizen-conscious, and our stealth tax regime isn’t customer-centric.

In February, all leadership focus was on two issues: the politics of Building Bridges (BBI) and the economics of the “Big Four”. Then Covid-19 struck. Now our leadership faces an untidy Venn diagram and a “giant sucking sound” (as 1992 US Presidential candidate Ross Perot famously put it). Big Four allocations have been slashed, BBI allocations don’t exist and the money train leads to Covid-19. It is hilariously ironic that the budget for a proper Huduma Namba (that might have helped us on Covid-19 through contact tracing and safety nets) was slashed by Parliament as they boosted their own budget.

With Covid-19 killing all legacy thoughts, what might a future leadership take from “Budget 2020” and the spending nightmare that (a) emanates from a “high maintenance (not high cost) government” and (b) causes all taxes and death, sorry, debt?

Here’s a wild one for Kenya, the world’s 29th largest country (by population) and 61st largest economy (71st on a PPP basis) that’s ranked 113th according to the Legatum Prosperity Index. Let’s get ministers to link their budgets to benchmarks. So we link the Tourism chap’s budget justification to a rise from position 82 on the global travel and tourism league table. Or we get Energy and Water budgets to get us out of the world’s bottom 30 according to the World Economic Forum. How should our Agriculture money elevate us from position 86 out of 177 on the Global Hunger Index, or Health money lift us from rank 113 out of 169 on Bloomberg’s Healthiest Country Index?

Hell, we’re second to South Africa on fintech, fourth in innovation and the happiest place in East Africa, though only 17th across Africa. Could the budget help? Our present budget discourse has outlived its usefulness. It’s time for new thinking and different action.