Will John Mbadi use his honeymoon at Treasury to rise to the occasion?

 

President William Ruto interacts with Treasury CS John Mbadi during a joint session of Cabinet and Principal Secretaries at State House Nairobi. [PCS]

Honesty beats hubris. A fortnight into office, it looks like the broad-based government, with John Mbadi as the new Treasury Cabinet Secretary, might still not get this point. Treasury wants to restore the unpopular 2024 Finance Bill that ended up as deadly Gen Z-led protests.  People lost life and limb, others got jobs.  What’s wrong with our picture?

By observation, Mbadi himself began with quiet media use which gave us interesting public sound bites before he actually got in front of a live TV interview. 

Back to the point, one suspects our Treasury CS job balances finance, accounting and economics, run by politics, tempered towards governance. 

Mbadi is a great communicator.  On live TV he bandied tax figures of Sh150 billion and Sh600 billion.  Before the International Monetary Fund (IMF) paid courtesy to, as wags noted, “introduce the CS to his own office”, he had hinted at 47 to 49 tax amendments to raise Sh150 billion.

The Finance Bill was to raise Sh302 billion, plus Sh44 to Sh45 billion in customs revenues under East African Community arrangements, from 65 amendments. Sh346 billion was lost from the withdrawal of the Bill

If we also recall from the supplementary budget, the revenue cut (before appropriation-in-aid) was Sh285 billion, not Sh344.3 billion and the spending cut was about Sh120 billion less, signalling new borrowing. 

If you know fiscal jiggery-pokery, the newly planned Sh150 billion pretty much restores the original deficit target, which will probably delight the IMF with their seventh programme review still not done. 

We may not like it, but IMF now sits firmly in our economic, fiscal and monetary policy space. 

The honest public confirmation Mbadi made was that our current IMF programme is revenue-driven. The untold speculation might be that our current pound of flesh is a Sh77 billion IMF input, plus more from the World Bank, if we restore taxation order.  The reality is the seventh review of our current IMF programme to April 2025 is delayed, but we are terribly eager for the next IMF one.

Although he didn’t mention it in the TV interview, he had already casually suggested that tax expenditures (tax breaks, waivers and exemptions) amounted to Sh525 billion in the last financial year. 

Treasury’s last published tax expenditure report estimated this amount at Sh394 billion in 2022, with revised estimates of Sh293 billion, Sh239 billion and Sh261 billion in 2021 to 2019 respectively. 

If this is true, then tax expenditure has gotten far more out of control in this regime than it was in the previous one!

Of course, our new Treasury CS has offered more priorities.  During his vetting where he arguably explained the Bottom-Up Economic Transformation Agenda (BETA) better than Kenya Kwanza, he also promised greater debt transparency, a shift to project-based concessionary borrowing, lower lending rates, smoother disbursements to counties, tough action on pending bills and procurement automation.  He has also pointed to payroll cleansing and zero-based budgeting. 

He repeated a couple of these in the live interview, and, to be fair, it’s his first two learning weeks.

More interesting are implied responses to four points his predecessor highlighted in a long handover note. 

Limits to our tax capacity?  We need more tax. Poor, corrupt spending? End-to-end procurement. Government’s liquidity challenges? No answer yet, though we buy money printers with the money to pay teachers.  Growing poverty.  No question, no answer.

Of course, Mbadi could stick to paperwork.

The result areas in his ministry’s 2023-2027 strategic plan are: 

• Resource mobilisation to finance public expenditure.
• A stable, sustainable macroeconomic environment.
• Policy, legal and institutional frameworks for development planning, budgeting and intergovernmental and stakeholder relations. 
• Tracking, evaluation and reporting on the implementation of development plans, policies, international frameworks and financial payments.
• Strengthened institutional capacity and business processes.

Or the seven result areas in the narrower and donor-supported 2023-2028 Public Finance Management Reform (PFMR) Strategy, which are:

• Sustainable and predictable fiscal space to deliver government programmes. 
• Strategic and transparent spending on public investment and service delivery in line with national and county policy commitments. 
• Reliable cash for service delivery and public investments.
• Value for money in procurement and contract management. 
• Performance, and accountability in staffing for service delivery. 
• Disciplined financial management and accurate reporting. 
• Accountability through audit, oversight and follow-up.

That’s a nice bureaucratic checklist of technical results.  It’s a foundation for external support.

But his real task is practical.  Better policy signalling in our economic management, beyond poor planning. More courage in fixing our broken public finance management, outside bad budgeting.

But first, keep it simple in this honeymoon. First, audit our convoluted tax code before you tax us more. During its sixth review of the current programme, the IMF pointed out Kenya’s tax regime as a high-frequency adjustment with sub-optimal return compared to EAC neighbours.

Second, go to debt.  Odious debt is the word on the streets.  A debt audit was promised.  Start with a debt inventory based on a public sector balance sheet, as IMF also identified as an issue of concern in the sixth review, having estimated our growing negative public sector net worth over time.

On spending, start with 2,000 plus ongoing projects at national level as counted in our 2024 public sector budget hearings.  As our leaders scramble to delete old project launch images on their social media timelines, young people are traversing the country offering embarrassing “kwa ground” revelations and insights.  What does our vaunted e-promis say in practice not records?

We could add maybe a trillion in pending bills and more than Sh200 billion in unsettled court awards. This is as much a financial problem as it is an accountability, and mostly, economic, problem.

On the other hand, where is our costed, constitutional expenditure framework for everything?  Treasury must do better looking to the future, not moaning about past and present.  If we knew what life might cost, we might make better decisions to opt in or out of government.

The fourth and final inventory is his wild card – resources. Gen Z have made plenty of noise about hidden mineral resources, but what’s needed is a full picture of our entire resource base. 

In the long-run, it’s resource development, not revenue extraction, that truly progresses us.

It’s all interconnected, but I pray that Mbadi rises to the occasion.

He is no Gen Z, but his tenure might upturn us from ‘Gen Zakayo’ to ‘Gen Zote’.  Honesty always beats hubris.