I agree with your analysis regarding developing countries getting high interest loans. Allow me to give my general opinion about this issue, you may or may not agree with my perspective but I want to hear what you have to say about it. For me the problem with our fiscal policy is that we are maintaining a very high budget deficit. Yaani our expenditure far outstrips our revenue. This budget deficit is compensated for by borrowing alot of debt. As long as we continue spending above our means we will keep on borrowing alot of money in order to plug the gaping holes in our budget. Last year our revenue was roughly ksh 1.8 trillion and yet our expenditure was somewhere in excess of ksh 2.8 trillion. That is a budget deficit of almost ksh 1 trillion that has to be paid for by borrowing more debt. This budget deficit ya ksh 1 trillion ni almost 10% of our Gdp. As long as we keep on running these high budget deficits, we will keep on borrowing more debt. The only solution is to reduce the budget deficit to around 4% of Gdp or less. And we can reduce the deficit by either reducing expenditure or increasing revenue. The easiest way is to reduce expenditure because increasing revenue is not easy and takes time. We can cut expenditure by reducing recurrent expenditure instead of reducing investment in infrastructure. The problem with reducing recurrent expenditure is that our current constitution forbids govt from reducing any employee's salaries. So we are in a catch 22 situation. Either the govt fires people because they can't reduce their salaries or they reduce the investments in infrastructure. Firing employees is not a good decision politically and no politician is willing to do so because they will lose votes. So I think the govt will be forced to reduce the amount it spends on infrastructure in order to reduce the budget deficit. However, if the govt is somehow able to increase its revenue collection then there will be no need to reduce expenditure, but as I have already said increasing revenue is not easy and KRA has been missing their revenue targets every year for the last 3 years. So it looks like if the govt wants to reduce budget deficit then they will have to cut investment in infrastructure. However, if the govt refuses to reduce the budget deficit then we will keep on borrowing more and more loans to fill in the holes in the budget. This high budget deficit if not reduced will increase our debt budden to unsustainable levels. Once our debt to Gdp ratio reaches 100% you will start seeing creditors refuse to lend more money to us and also credit rating agencies will automatically reduce our credit rating because of the high unsustainable debt levels. Most banks and creditors will either run away and refuse to lend money to a highly indebted developing country or if they continue lending to us, they will jack up the interest rates even up to 20% p.a to compensate for the risks involved. So more debt leads to more expensive loans, more expensive loans lead to more debt and more debt leads to more expensive loans until you default and then cycle stops after default. Reducing our budget deficit is the only way we have of getting out of this trouble that we find ourselves in.
I totally support your logic. Actually having read your analysis made me take a step back and think on this issue of debt. You see, the problem is not so much on borrowing beyond our means, but more to do with borrowing billions of $$$ but not making good use of it. Kenya has a sound economy due to its diversity(If you remove the huge debt) we have all the potential for economic take off, thats why the likes of IMF are still willing to fund us such huge loans. Shida ni kwamba tukipewa izo loans tunazitumia vibaya na kuzi waste. Then we end up using our taxes to pay back loans that no one can account for.
If we were properly utilizing the loans , Trust me, we would be paying them back no problem. Lakini kama kazi ni kuchukua loan ya 30B kujenga kimworor dam au 17B kufanyikisha laptop project alafu at the end of the year, nothing iko kwa ground, then things wont look so good after a few years.
On the issue of reducing recurrent expenditure, if it was me doing government policy , I would moot for a complete overhaul of how government works, (but this can only be implemented by a serious president - not the current leadership). It will be expensive in the short term but very worth it for the long term. It would cost like $1Billion (I know it may sound ludicrous to tell someone that you want to reduce govt recurrent expenditure by spending even more money which will probably come from a loan!!!) but hear me out.
For $1 Billion:
- I don't know what the civil savant demographics are but there are alot of senior people just waiting to retire with their pension, the retiremt age is 60 years, voluntary retire anyone above 54 and give them their full pension.
- If KPA has managed to make port operations paperless, why can't the whole govt go paperless, this alone will make alot of govt jobs redundant. All government services, transactions go digital.. This will need retraining of all govt staff who will be left to the new system. Any govt job that can be done by a machine or a computer should be done by a machine or computer! This will make hundreds of thousands of civil savants loose their job and this is how you make them accept this plan ... GoK will offer to pay for on-the-job training of these civil savants to be absorbed in the private sector. Alot of private companies will be more than happy to benefit from such a deal. e.g if an EPZ factory needs 100 new workers, GoK pays for them to be reskilled/upskilled at this new job. One of the Scandinavian countries has successfully done this in the 70's actually, also a company like IBM did alot of reskilling CPA and Finance workforce who eventually became IT and system Admin guys back in the day. someone who was earning 40k in government would be earning 60k in private sector. GoK will have to guarantee that all those who will loose jobs will find a place in the private sector.
This will completely change how govt works, Technology would have replaced 'dumb' jobs leaving only smart people at the decision and policy making positions,
the govt will be much smaller but way more effective. The civil service would no longer be a last option career but the first option where bright students compete for a few lucrative slots. There should probably be a govt think tank made up of technocrats that will be in charge of development policies that GoK implements. e.g this think tank would have looked at the Lapsset project and made sure that procuring for the port equipment, building of the road network to S.Sudan and Ethiopia, and completion of the three births need to be synced together so that they all get completed at the same time, So that financial year all those related project are planed for by implementing agencies.
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But all of the things that we have talked about are remedies for treating a symptom and not the disease. The real disease that's hurting us is
corruption. I would estimate that around $3Billion of money collected by KRA actually never gets into GoK accounts, I would also estimate that we probably loose in excess of $1Billion to Tax evasion. And for the tax money that gets to government, the Auditor General once said that $6Billion of Kenya's budget goes unaccounted for every year!!! Unaccounted doesn't necessarily mean it was stolen, it means there are no receipts to prove what it was used for, So I would guess half of that is just poor accounting but the other half is stolen. So that's around 3+1+3 = $7Billion in total, Money that GoK is supposed to be using for development every year but it gets lost!!!! And this is why we keep spending beyond our means, cause we are spending but we don't get returns that support our spending.
Kama ingekua mimi, the Auditor Generals report will be enough basis to fire a minister and their permanent secretary. If you cant account for your money then that's gross negligence or incompetence, I don't need to prove that you are corrupt! I would actually make parliament make it a law , If you cant account for 90% of your departments money, you are negligent and can be fired without notice! The ministry of health, the ministry for internal security and the ministry of Education and the min.of Infrastructure would be my first target, These ministries takeabout 70% of the budget and the first 2 ministries are notorious for being unable to account for their monies. And BTW, Why is MoH still getting the same amount of money that it used to get before devolution when Health is a devolved function? All they need is money to run a few National referral hospital and coordinate national health programs like vaccinations, why are they still getting money like when they used to run all the hospitals in the country??
