Budget 2024: The big picture and the IMF hand

We start by quoting the IMF Staff (not Board) Agreement press release of Tuesday June 11, 2024. Referencing the early re-financing (not repayment) of our 2014 Eurobond and their “recalibration” of support to Kenya, it notes “…despite these positive developments, we ended up with a significant shortfall in tax revenue collection and a deterioration in the primary fiscal balance in 2023/24 relative to programme targets (necessitating elevated) domestic borrowing”. 

In simple English, we weren’t squeezed hard enough. So, because of our untamed spending appetite, including endless travel escapades and a growing proclivity for large cash bundles at church and other public occasions, we progressed banks and smart investors into mega-super-profit territory.

This is Kenya’s core problem. We were financialized before we industrialised. 

The IMF is the closest idea we get to the world’s Central Bank. So, it is in their self-interest that our fiscal tail wags our economic dog, in order to sell us, at bottom, their largely monetary wares. Which is why their press release continues by saying “a sizeable and upfront fiscal adjustment in FY 2024/25 will be needed to correct (the) course.” This is techno-speak for “squeeze them more.”

Then the applause. “The authorities have taken decisive steps towards fiscal consolidation by introducing several measures in the context of the draft 2024/25 budget and the 2024 Finance Bill.” If Kenya was a game of Grand Slam tennis, this is basically “game, set and match.”

In other words, it’s done and dusted. There will be all manner of noise in the August House, but, as Kenyans are wont to say “hii imeenda!”  Our National Assembly’s Budget and Appropriations Committee has already given us a Sh4 trillion spending budget for 2024/25. 

Now its Finance and Planning Committee will submit a public participation report on the 2024 Finance Bill that hopes to raise Sh302 billion in tax measures, including almost Sh60 billion from that motor vehicle asset, not circulation tax.  And, for all the noise MPs make “kwa ground," this is a done deal. 

These are the same MPs who were jumping up and down on the floor when the 2023 Finance Bill before them hoped to raise, first, Sh311 billion, then Sh210 billion. Yes, the same people we elected to do four things. Represent. Oversight. Legislate. Evaluate. In short, that’s their role. 

Evaluation is an important task right now. Did the Finance Act 2023 (theoretically still in court) deliver?  Here’s a thought experiment to consider. 2022/23 – before that Finance Act - delivered tax revenues of Sh1.962 trillion per Exchequer statements.

Conservatively estimating 5 per cent economic growth would have delivered Sh2.06 trillion without that Act in 2023/24.  Quarter 3 Exchequer reports suggest that KRA hits Sh2.047 trillion at the end of this month and fiscal year. 

In other words, the data seems to suggest that we might have gone backwards with these 2023 tax measures, which mainly targeted incomes. 

Now that we are done with incomes, we want to go for consumer spending in 2024 in an economy that is largely services-driven while doing a policy experiment on the industrialization agenda that grows us away from pure financialization. Oh, but we also want to hit financialization itself!  And here we were, thinking that this administration had figured out it’s inclusive financialization, not financial inclusion that we need! 

Of course, with Finance Bill 2024, we are immersed in its devilish detail, seeing the trees without understanding the forest. Part of the problem our MPs might have is understanding that some of what this bill aims to achieve is a clean up of tax expenditures (exemptions, waivers etc) across our multiple tax regimes.  Yet, as lawmakers, the real problem is that they will not see the link between policy, strategy and law. Policy to promote good, strategy as how and law to prevent bad. 

Remember the National Tax Policy? It was supposed to create a predictable tax environment. In its 6th Review of current support to Kenya, the IMF pretty much said we are the most tax-unpredictable environment in the region, while noting that neighbours Rwanda and Burundi have surpassed us on tax extraction from the economy (tax to GDP ratio). The quiet hint was that we have a “personal to holder” tax regime that depends on who is close to the political regime. 

Medium-Term Revenue Strategy? This one promised a lowered VAT rate and a revision of personal income tax bands this year. At some stage in the future, lower corporate tax rates. In short, policy and strategy pointed us forward, and then these finance laws took us backward. 

And we have a Parliament that is quick to appropriate spending without a full picture of revenue. Not just the Finance Bill, but a legislative view, from an evaluation , of our total revenue estimate, including the loans and grants we receive through Treasury which somehow escape their prior approval. 

Some of which will come from a World Bank cautioning us against unrealistic revenue forecasting, to which we have the added voice of our Auditor-General.  The larger point here is we cannot tax ourselves into growth. The louder point, of course, is we find ourselves on a debt treadmill.  

Of course, in return for allowing us to use some of their loan money to pay off the balance of the 2014 Eurobond, we must trim our public wage bill, computerize procurement, create a jobs framework for refugees, declare wealth as public officers, e-commerce our revenue, strengthen our social protection and energize our carbon markets, among other things on their “to do” list. 

As things stand, none of this is within this Parliament’s bandwidth. The spending will continue unabated.  For example, Supplementary II (the second supplementary budget estimates for current 2023/24) has been signed off with what looks like a record budget deficit crawling towards a trillion. 

In rough numbers for 2024/25, a Sh4 trillion spending budget against an incredulous Sh2.9 trillion revenue takes us past this trillion mark, fine fiscal language notwithstanding. This is our first tragedy, that our MPs refuse to connect the dots between higher spend and higher taxes. 

But it is the second tragedy that should concern us far more.That, in passing the 2024 Finance Bill and Budget 2024/25 – good or bad - Parliament didn’t actually make our budget.  Others did.