Pledges are fine, but test is in financing them

Kenyans gathered in a political rally.

African elections don’t normally involve debates around the state of public finances. You will not get concrete transaction-level promises on how to reduce, or at least manage, public debt, cut wasteful spending or lessen the tax burden. 

You are even more unlikely to hear higher-order policy level commitments towards prudent and responsible borrowing, balanced budgets or a predictable tax regime. But you will be bombarded with pledges to throw billions into popular ideas that need real money. Although it is fair to admit that our electoral conversation is changing, Kenya is no exception to this rule.

Of course, we still await lengthy manifestos that the various protagonists, especially at presidential level - and now increasingly with governors - will present to us. In countries that believe in written manifestos (to the extent that they are believable) like the UK, manifestos are costed. 

Recent elections in that part of the world have featured high-level costings of party manifesto promises by the Conservatives, but mostly Labour and the Liberal Democrats.  It helps that a better functioning political party system, with each party moving with specific ideological positions, works over there. The jury is still out on if we will ever get to this stage in Kenya, particularly with recent amendments to the Political Parties Act.

In places like the US, where the manifesto is more often represented by a political platform of policy proposals, it is possible to find costings hidden somewhere in the devilish detail. Again, the idea here is simple, somebody has to pay for the electoral promises, so it makes sense to deal with that before it deals with you as the candidate. It is also common, in both places, to find independent analyses performed by researchers, think tanks and the press, so it is quite easy for interested citizens to get to the detail.

We are not quite there, and initial comment and analysis, particularly of proposals by Deputy President William Ruto and Opposition Leader Raila Odinga have focused on the broad affordability of the ideas they have floated in the public space. Where will Sh50 billion for “hustlers” come from? What of the Sh100 million per constituency? Or the Sh6,000 per household? On this last one, we have 12 million households in Kenya so two million households means one in six; four million households is a third, and sixmillion is half of Kenya – which means disbursing anything between Sh144 billion and Sh432 billion a year.

In our current context, the normal wage bill plus operations and maintenance (procurement/service delivery) plus debt interest in the 2021/22 financial year – each at over Sh500 billion – will consume our entire tax collection. That is before allocations to counties, debt repayments and payments for constitutional office salaries and pensions. 

In the 2022/23 financial year, which the new administration will inherit, the Budget shape is such that, for example, twice as much (Sh200 billion) is allocated to national security (army and intelligence, excluding police) as to the Big Four Agenda (food, health, housing and manufacturing). Which is why our next President will walk in just after Kenya takes its fifth Eurobond in nine years.

Try campaigning with these data points to illustrate alternative, but true, facts! And this is just the appetiser!

To their unacknowledged credit, the One Kenya Alliance (OKA) recently began to speak on public finance, though the solutions offered smacked of reactive evangelism in the face of relentless populist messaging by proponents of the ‘bottom-up’ economic model. Slashing taxes by half? Paying off all public debt in the next two years? Kenya is neither Nirvana nor Utopia.

If anything, our national budget documents – Budget Review and Outlook Paper; Budget Policy Statement and the Budget itself – should be compulsory reading for any persons imagining, encompassing or otherwise purporting to aspire to the highest position in the land. Fiscal consolidation is the key word from now. It is the fiscal bed we made.

More interesting was ANC Party Leader Musalia Mudavadi’s ‘Earthquake Address’ last Sunday. A faltering, nay struggling, economy; overtaxed Kenyans, pervasive corruption; expensive infrastructure; a mountain of debt. 

Commentators in the media and elsewhere termed it a ‘true State of the Nation’ address. Absolutely on point. Lifted the veil. Spoke the hard truths. But that’s it. It is almost as if we heard our reality, accepted it and then switched our attention back to the fairytales on the campaign trail. 

Corruption is a particularly interesting one. We are either refusing to make it a campaign issue, or the people talking about it should not be talking about it in any shape or form in the first place. 

Add to this suggestions from a couple of aspirants that “we know how to fix the corruption loopholes” or “we will jail all thieves”.

In the meantime, theft of the Budget is probably the most relevant to today’s conversation. Now infamously described by the former Auditor-General as ‘budgeted corruption’, it is an increasingly firmly established culture of budgeting that targets the ‘steal-able’ items of the budget – operations and maintenance and development budgets. Essentially, this happens in the procurement of goods and services for day to day service delivery (think NYS) or capital projects (think Arror and Kimwarer dams). The link with the other three frames – services at the citizen level; policy and planning from above – is obvious.

While corruption is an important part of a debate that looks at public finance; the practice of public finance management (PFM) is a little bigger than that in the context of our developmental dreams. So here are four final reflections on the role of PFM in our electoral conversation. These reflections begin to explain why it is one thing to listen to utopian promises out there, and another to get our real context.

The first is about PFM discipline. Over-budgeting is part for the curse in Kenya. Across our ten sectors using the Medium-Term Expenditure Framework (MTEF) process introduced to us a generation ago by the Bretton Woods and other development partners, the trick is to pitch for more to get what you want. 

It is a ‘theory of scarcity’ approach which ends up with sectors and ministries over-bidding against resource ceilings made available by the National Treasury, being cut down to those ceilings and still promising results without resources. Resource over-bidding in recent years has been in the range of a trillion shillings.

The second is MTEF discipline itself. The idea behind MTEF is a government that thinks in the medium term while focusing on the short-term on a systematic basis of rolling budgets (estimate the next three years; budget for the immediate next; implement the immediate next as you roll the budget to the following three years). It is the sort of policy-planning-budgeting approach that is supposed to think beyond elections. It simply does not work in Kenya; all budgeting is for the immediate next year, period!

The third is about our development discipline. This is a little more philosophical but it responds to the idea that we may actually have medium to long term projects we wish to implement as a country. 

Take LAPPSET as a proof of concept example. Once the viability and sustainability issues are sorted, this is a project for the ages, not simply as an infrastructure enterprise of ports, rail, refineries, roads and resort cities but as an idea to open up northern Kenya. We struggle to fit this into PFM as process, or MTEF as framework. The result is tiny annual allocations without ongoing proof of concept or public buy-in.

‘Benchmarking’

The final reflection takes us, to repeat, back to our Budget shape. On the cost side, we have a huge wage bill and are struggling to eliminate ghost workers. We have an operations and maintenance budget full of ‘jolly jamborees’ with allowances galore for ‘benchmarking’ plus ‘tender-procurement’ of goods and services. Now, after a decade-long proliferation of big and small public projects (4,000 by IMF/World Bank count at national level; with at least as many across counties), the development budget is out of control. 

To be clear, these are national government observations; it’s more basic in counties with bloated, duplicative payrolls and ambitious cash-eating development budgets; hence zero cash for service delivery.

At the height of the NYS scandal, blame was thrown at IFMIS and its problems. The real challenge, however, is a PFM system, or system of public finances that lacks discipline at multiple levels. Kenyans pay for this indiscipline with an increasingly aggressive KRA.

It will be interesting to see what these candidates say about paying for their promises. It may be more useful to view these promises to pay using the real PFM lens where it starts and ends. Watch this space.

Part two continues tomorrow