We’re slowly dancing our way back to the economic woes of ‘90s

It has been about two decades since the last time the term Structural Adjustments Programmes (SAPs) was part of our fiscal and macroeconomic discourse. After a seemingly healthy economic expansion from a contraction of two per cent (-2 per cent) in 2002 to peak at over seven per cent in 2007 and stabilise at an average of about 5.4 per cent, one wonders how we slipped into this national disgrace again.

For those who are new in town, SAPs refers to a prescription from the Bretton Woods Institutions (the World Bank and the International Monetary Fund) to developing countries in the 1980s through the 1990s. At the time, the public services for these countries were considered to be overstaffed, weak, corrupt and inefficient.

SAPs in context

SAPs were proposed as part of the new public management that includes resource optimisation; alternative service delivery mechanisms that introduced performance measurements, efficiency, economy and value for money concepts; and a minimalist state under a Structural Adjustment Programme. The reforms were the pre-requisites for developing countries to access aid, grants and loans from multinational institutions and developed countries.

However, critiques of the new public management argued that it failed to draw a distinction between the public and private sector paradigms in management. It also did not address social concerns and public welfare. A 1989 Word Bank report titled, Sub-Saharan Africa: From Crisis to Sustainable Growth, documents a worsening economic performance for the region despite the existence of SAPs. It was out of this subtle acknowledgement of the failure of SAPs that the term “governance” was birthed.  

Governance is defined as “the exercise of political power to manage a nation’s affairs”. In this context, it focuses on institutional reforms for more effective service delivery. The World Bank report mentioned above concluded that Africa required not just less government but a better government. Today, good governance drives the way of doing business for both public and private sector entities.

It was therefore a big misnomer and a contradiction to official posturing of a robust economy when SAPs appeared during the approval of a $2.4 billion (Sh259 billion) by IMF. Key questions quickly come to mind: One, have we ever done a structured evaluation to assess the impacts of the SAPs of the 1980s/90s? Do these externally-imposed conditionalities preserve the primacy of our sovereign and national interests? Could this be a tip of the iceberg from a broader fiscal and macroeconomic problems we are facing?

ghosts of SAPs in Kenya

While writing this article, I searched for any publications on SAPs in Kenya. There exists a few sector-specific studies done by academia and advocacy organisations. The sectors covered include education, healthcare, food and nutrition security, poverty and social welfare.

On education, for example, there are publications associated with the University of Nairobi and Moi University. These studies adduce evidence that the cost-sharing programmes introduced in the sector in the 1980s led to exclusion and reduced access to basic education for children from poor households. At the university level, students’ involvement in income generating activities to supplement their subsistence costs consumed much of their time to the detriment of their class performance.

In the health sector, the most compelling evidence is from an article by Thomson, Kentikelenis and Stubbs in July 2017 titled, SAPs Programmes Adversely Affect Vulnerable Populations. From a sample of 13 reviews that met the study criteria, they conclude that SAPs was detrimental to children and maternal healthcare. Other studies point to increased unemployment, income inequalities, inflation and exclusion of poverty alleviation under SAPs.

But perhaps the most compelling evidence on the negative impacts of SAPs in Kenya is the unquantified consequences of the retrenchment programme and freezing of employment in the 1990s for a decade. Under pressure to reduce public wage bill, the government was forced to undertake this exercise in order to access grants and external funding.

Many things went horribly wrong! One, SAPs being a new thing, the country lacked the competence to undertake an objective and performance-based human resource re-organisaton. Two, the process was politicised and/or tribalised. Three, the decision-makers of the day were most likely not the qualified, but were less likely to go. Finally, the exercise failed to take cognisance that a huge burden of the public wage costs lie in the perks and allowances enjoyed by senior public and State officers and the political class.

As a result, key sectors of the economy like education, health, agriculture, and energy were robbed of critical skills, competences and injection of new blood. More tragically, those exiting public service either through retirement or natural attrition were not being replaced. That explains why to date, no matter how many teachers, healthcare workers, engineers, economists, accountants, judicial and security officers are hired per year, it still feels like a drop in the ocean.

A complex systemic problem

The deployment of technical economic jargon like fiscal consolidation and budget deficit management in the $2.4 billion (Sh259 billion) IMF concessional facility may escape ordinary folks. At policy level, such coronations cannot, however, resolve the structural and systemic issues bedevilling the economy. For instance, the 2021/2022 Budget Policy Statement is full of contradictions that demonstrate the incoherence at top policy response and lack of the will to tame waste and live within our means.

As per the Budget Policy Statement 2021/22, government expenditure has increased by about 59.2 per cent (from Sh1.9 trillion to Sh3 trillion) over the past five years from 2015/16 fiscal year. In that period, ordinary government revenues have only increased by 36.5 per cent (from Sh1.15 trillion to Sh1.57 trillion). The Controller of Budget expenditure reports place public debt and interest redemption at Sh707.65 billion for 2019/2020 and Sh821.3 billion for 2018/19 fiscal years.

The Economic Survey for 2019/20 by the Kenya National Bureau of Statistics places the public wage bill at about Sh670 billion in 2019, up by 45 per cent, compared to Sh462 billion in 2015. In government priorities, public debt redemption and salaries and wages are the first two priority areas in that order. This suggests that about 90 per cent of the ordinary revenues collected in the fiscal year 2019 were spent on debt redemption and salaries only. For the 2021/22 fiscal year, recurrent expenditures is estimated at Sh1.986 trillion, more than any annual ordinary revenues ever collected in the country’s 58-year history.

If we are truly talking about fiscal consolidation and budget deficit management, how can this be our economic plan and budget proposals for the medium-term? What are we consolidating if Treasury mandarins are still lining up Eurobond 4 and 5 in 2021/2022? How can we be signing for conditionalities that expand taxes like VAT (Value Added Tax) on petroleum products that fuel inflation and sink household incomes further into the abyss after the pandemic? If we are the economic “Big Brother” of the Eastern African region, how can we be on externally-imposed conditionalities when our economic siblings are not?

Granted, the country claims to have bragging rights for human resource endowment. Many decorated professionals have joined the ranks in public service and State offices since the SAPs of the 1990s. How can we then explain this mockery to the primacy of our sovereign will and preservation of our national interests?

As a patriotic citizen, I humbly submit that this is “an economic moment”; let’s forget about the non-existent “constitutional moment” and get into the business that matters most now!  

[email protected]