Kenyans, brace for a bumpy economic journey in the run-up to 2027 elections

The National Treasury Building in Nairobi. [File, Standard] With each passing week, it is easy to surmise that the current Ruto administration, now broad-based government (BBG), floats around in a parallel universe of its own where every major "happening" seems to be a distraction from a different "happening" which is itself a diversion from yet another "happening". Long forgotten is that this administration - as Kenya Kwanza - assumed office on the back of "The Plan"; specifically the ambitious Bottom-Up Economic Transformation Agenda (Beta). In our current "twilight zone," the regime is only half-way through its term, but the public lens is already trained on 2027 General Election. So, at the end of a difficult past week dominated by increasingly tough headlines in our independent media, the administration probably breathed a huge sigh of relief after its latest BBG distraction - reorganisation of government focused on Principal Secretaries (PSs) appointed, promoted, demoted, redeployed or reshuffled. Will we have a fifth Cabinet-level reshuffle in less than three years as the next BBG "happening"? On Permanent Secretaries reorganisation, most media and public commentary has, as usual, focused on "winners and losers" at political, regional, tribal and personal level in a more expansive and expensive government. The nature of these reorganisations - which always claim to seek improved performance - hints at deeper problems beyond politics. The core problem is this administration thinks it can implement a "business unusual" agenda (Beta) using "business as usual" methods (including hiring for loyalty, not performance). Yet, the recent reorganisation was the latest distraction. After all, "it's the economy, stupid!". Which is why the really hard questions of the moment should concern the economy and fiscus. Fortunately, we had a TV interview during the week by National Treasury Cabinet Secretary John Mbadi. We also know that Kenya faces a fast shifting development partner context - ranging from business with the IMF to US aid cutbacks. While an interviewee can only respond to what is asked, the Mbadi interview turned into an impressively detailed data monologue without offering either synthesis (key messages of information) or context (knowledge gained and lessons learnt). The discussion covered four broad areas; mostly focusing on revenue and debt, while snippets on spending and the economy. Let's try and turn this data into words. Beginning with the story on revenue. The current National Treasury leadership still wants to grow tax revenue, on two premises. First, more realistic revenue forecasting, although the numbers still reflect more hope than reality. Second, not to raise taxes but to expand the tax base by bringing on board hitherto "hard to tax" revenue streams from MSMEs and rental income. The difference today seems to be that the tax targets are more modest than those agreed with the IMF in the current program which ended so abruptly. Less evident are steps to respond to public perceptions around "over-taxation", especially in a context of waste, misuse and misappropriation of public funds, including emerging "financial black holes" in our fiscus. On the other hand, there is much excitement over non-tax revenue performance which is exceeding targets. The missing piece seems to be that actual quality of service delivery has not improved significantly, mostly because we have simply digitised the paperwork, not digitalised actual delivery processes. More worryingly, a growing number of actual service delivery experiences among Kenyans suggest that - digitized or not - the prevalence of petty bribery and speed money is returning to our 20th century levels. The story on debt is very alarming. Not only have we internalised "liability management" (borrowing from Peter to pay Paul) as the latest game in town, but we seem quite excited about it. The bad news is we are several years away from getting off our debt treadmill. Indeed, there were moments during the CS interview where he sounded more "receiver/manager" than "Treasury chief". To be clear, our debt crisis is the poisoned fruit of the previous administration's mega-project debt binge. Today, with debt service crowding out the fiscal space, we are not borrowing for development, but against it. Ironically, the interview suggested we have now mastered this debt game, so what else do we want from the IMF? As you ponder that last point, we turn to the story on spending. The hard truth is our current spending envelope is dominated by debt service and the public sector wage bill, and we pretty much need to borrow to deliver day to day services (so what does non-tax revenue do?), embark on development projects and finance counties and their own service delivery and development functions. Yet the unfortunate messaging from the CS spoke of an expensive Constitution, hence government, while preferring a maximum of 14 counties. The truth here is we super-imposed a progressive, reformist constitution with new structures and different ways of working on an unreformed government which remains outdated in both respects. Think of reorganisation of government which added seven new Principal Secretaries, with staff, facilities and working infrastructure. Or a fast expanding national government administration at local levels, through sub-counties and other administrative castles in the air. Consider this. Total spending in the recently approved and enacted Supplementary II Budget Estimates for 2024/25 will largely what was set out in the original Budget estimates, before the Finance Bill protests, making the Supplementary I estimates largely irrelevant. You don't have to go to budget detail to understand this is how unreformed government works. The fix isn't some fancy e-procurement system! With 2027 politics gaining momentum in our broad-based government settings, don't expect any serious conversation on disciplined public spending before then. We aren't even having a conversation on responses to aid cuts by development partners, not just restricted to the US, but Europe. Even at a technical level, "zero-based budgeting" doesn't interrogate entire programmes, but starts from the service delivery and development point where payroll and debt service is already baked into the budget! Indeed, there is a danger that, contrary to the National Treasury assertions, we will experience higher than projected fiscal deficits in this pre-election period - on account of lower than expected taxes on depressed economic activity against politics-induced spending. In simpler translation, we are looking at a growing debt mountain. Think about that the next time you follow our leaders' cross-country "development tours". If the conversation on spending is muted, the larger one on the economy is all over the place. The little we heard during the interview was about construction, mining and manufacturing as growth priorities. A week ago, the handshake said mining, blue economy, agriculture and ICT. It is impossible to keep up! Lest we forget, it is now that we should be talking about economic "turnaround" after two years of "recovery". What is clear is planning is not connecting higher-level policy to lower-level budgets in a way that offers clarity on the priority and sequencing of our economic priorities. With policy now resident in State House and budgets oscillating between State House and Treasury, is planning in a "no-man's land" at Treasury? In short, are we asking the questions, or are we happily distracted? Because, there were signs from that Mbadi interview that our economic and fiscal ride to 2027 might be far more bumpy than anything so far!

Kenyans, brace for a bumpy economic journey in the run-up to 2027 elections

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Kenyans, brace for a bumpy economic journey in the run-up to 2027 elections

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