Treasury CS spells out plans to lay ground for steady economic growth

Treasury Cabinet Secretary John Mbadi. [File, Standard]

In the face of mounting economic challenges and waning public patience, Treasury Cabinet Secretary John Mbadi has outlined an ambitious plan aimed at revitalising the battered economy.

With a focus on combating corruption and boosting tax revenue, Mbadi said he was determined to steer Kenya towards greater financial stability while reducing dependence on international financial institutions such as the International Monetary Fund and the World Bank.

Despite the positive trajectory of Kenya’s economic growth, which the CS reported is currently at 5.6 per cent and projected to remain above 5 per cent in the coming years, he acknowledged significant hurdles and lack of a trickle down effect for Kenyans.

“Our economy is growing at way above average,” said Mbadi in an interview, emphasising the strength of the agricultural and services sectors.

However, he pointed out the pressing need to bolster the manufacturing sector and address issues within the construction industry, particularly due to stalled road projects.

Mbadi stressed the urgency of achieving higher growth rates to accommodate the increasing number of graduates entering the job market.

“Experts find that we need not less than eight per cent economic growth to sustain job creation,” he explained. Anything below this threshold, the CS cautioned, could exacerbate unemployment, underscoring the necessity for a robust manufacturing sector.

A cornerstone of Mbadi’s strategy is enhancing tax collection, which he believes can significantly increase government revenue without imposing punitive measures on citizens.

“We don’t think we are pursuing any higher taxes. In fact, we have been very clear that we want taxes to come down.”

He urged business owners to voice any concerns regarding tax proposals, assuring them that the government is not interested in stifling economic activity or competitiveness.

Kenya Revenue Authority (KRA) currently collects approximately 14.5 per cent of the nation’s GDP, but Mbadi believes there is potential to increase this to 22 per cent.

“If we push it to 17 per cent of GDP, we can generate an additional Sh400 billion. At 19 per cent, we could see another Sh800 billion,” he said.

Such increases, he argued, would reduce the need for external borrowing, allowing the government to focus on larger developmental projects.

However, the introduction of new tax amendments has met with skepticism from the public, who view them as burdensome. Mbadi defended these measures, clarifying that they are designed to promote overall economic health rather than hinder it.

In addition to tax reforms, Mbadi is tackling the credit crunch that has constricted access to business financing.

“Interest rates have started coming down,” he explained, indicating a potential easing of the financial strain on households and businesses.

He expressed hope that this downward trend might soon encourage banks to resume lending at more favorable rates.

Central to Mbadi’s vision is a commitment to combat corruption, which he identifies as a major impediment to economic progress.

Mbadi also addressed the controversial plan for Public-Private Partnerships (PPPs), which many Kenyans have resisted. He acknowledged the challenges of introducing this model, but insisted that partnerships will help overcome fiscal constraints and drive large-scale development.

“For major infrastructure projects, we must go PPP. There is no other way.”

Mbadi acknowledged the challenges ahead, but said with a focus on fiscal responsibility, strategic tax reforms and innovative partnerships, he would lay the groundwork for a more resilient and prosperous economy.

Question. Explain your outlook on the economy. 

Answer.Our economy is growing at way above average —5 per cent. Actually, this year we had our economy grow at 5.6 per cent. Our projected growth this year is about 5.2 per cent; it may be slightly below, but I’m sure we will not grow below 5 per cent. Next year, our projection is 5.4 per cent. If you look at the world average, maybe next year it will hit 3.3 per cent; this year it is 3.2 per cent, and sub-Saharan Africa is about 3.7 per cent, growing to slightly 4 per cent. So, our economic growth is above average. It is driven primarily by the agricultural sector, which has been doing very well, and the services sector, which has also been strong.

However, we still need to do a lot of work in the manufacturing sector, which we have identified as one weak point, as well as in the construction industry, largely due to stalled road projects. What that means is that we don’t have a big problem with the economy. But if you look at our population growth and the number of graduates entering the market, experts find that we need not less than 8 per cent economic growth to sustain this level of job creation. Anything below that will likely lead to persistent unemployment. That is why we have to focus on the manufacturing sector and industrial development.

What is your perspective on the newly introduced taxes that many Kenyans see as punitive?

I don’t think we are pursuing any higher taxes. In fact, we have been very clear that we want taxes to come down. Even the tax proposals that we are making are not those taxes one would say are going to hurt the common person or inhibit business. If there is any provision that you think could affect businesses, please let us know. We are not interested in interfering with business. We don’t want to make Kenya uncompetitive because we have neighbours competing with us.

How do you plan to tackle the credit crunch affecting the economy?

One of the things we think is choking the credit market is that borrowing by the private sector has gone down. The Central Bank had to raise interest rates to manage inflation. But now the interest rates have started coming down. We were worried because we have been crowding out the private sector. That is why you hear Kenyans complaining that they don’t have money in their pockets. It is only banks where our money is banked, isn’t it? For a very long time, interest rates have never gone through 15 per cent; in fact, up to three weeks ago, was the first time that the 91-day treasury bill was traded below 15 per cent. You can see where we’re heading. If that trajectory continues, very soon banks will be running to you asking, “Where is your payslip? I will give you a loan.” They used to ask us not long ago.  

Why is the Treasury pursuing aggressive tax collection efforts?

KRA has the potential of collecting at least 22 per cent of GDP. At the moment, it’s 14.5 per cent of GDP that they are collecting. If we push it to 17 per cent of GDP, we can use another Sh400 billion. If we increase it to 19 per cent, we could have another Sh800 billion. We would not need to borrow another shilling—not even from Kenyans. We would only need to borrow more because we would want to do bigger things.

Most Kenyans resist more taxation because of corruption. How do you assure them their money is safe?

We are working on fiscal discipline. We are moving to e-procurement. We are also moving away from a cash basis. We have gone to zero-based budgeting. Every shilling this year that every department asks for must be properly justified.

Why are you still pursuing Private Public Partnerships such as the Adani-backed electricity and JKIA expansion projects despite resistance from many Kenyans? 

This is a very new concept for this country. We are trying to nurture it, and there will be ups and downs. For major infrastructure projects, we must go PPP. There is no other way. We have fiscal constraints to undertake such commercial projects. Now, if you’re driving from Nairobi to Nakuru, it’s a nightmare. On the controversial Adani Group, Who has reported that they are the ones who have done the Mumbai Airport? It’s a masterpiece. A lot of government departments are also resisting PPPs. Some are resisting because they feel completely uninformed; they feel that their jobs are on the line. So you find a lot of objections.