Why Kenya’s growth is stagnant


National Treasury and Economic Planning Cabinet Secretary Njuguna Ndungú escorted to Parliament Buildings under heavy security for the 2023/2024 Budget reading on June 15, 2023. PHOTO | LUCY WANJIRU | NMG

The ritual of the annual Budget is with us and it is all about tax and spend.

Last week, the government went to the markets to borrow Sh60 billion by selling a seven-year infrastructure bond. It ended up snapping a whopping Sh220 billion at the highest price it has ever paid for this paper — 15.8 percent.

The response by investors was confounding in many respects. They had been boycotting the paper just a few months ago. Yet when you look at it closely, this was not a true infrastructure bond as we have known that paper.

How do you explain a planned bond of Sh60 billion attracting Sh220 billion at such a high price? The signal is that government coffers are truly in a bad state.

There is another angle to it. All along, the market has been signalling it wanted higher rates, but the government wanted to keep rates at artificially low levels.

But with the year ending even and with spending pressures mounting, the broke government had to pay the price. And the market won.

A few points about this year’s Budget. It is all about tax and spending. You need a magnifying glass to see traces of relief in the Finance Bill.

I maintain the reason the growth of Kenya has been stagnant and our public finances are in such bad shape is tax policymakers believe in the dogma that by enriching the government, you enrich the ordinary person.

The mentality is that by imposing higher taxes you collect more revenue and that the private sector can be milked indefinitely without breaking the link between reward and effort.

On Budgetary priorities, Kenya is a country of major contradictions. We will not allocate enough money for roads yet cite bad roads as justification for buying expensive fuel-guzzling vehicles for MPs and other senior officials.

We rhetorically preach austerity but proceed to buy a Sh20 million car for the Chief Justice and pay hefty salaries to hordes of advisers and personal assistants of governors and ministers when nurses out of medical training colleges take years to be deployed to rural dispensaries.

Graduates of State-owned teacher training colleges wait for years to be employed despite the fact that we have unsustainable teacher-pupil ratios.

University graduates in specialised disciplines such as engineering, agriculture and veterinary medicine search for jobs for many years.

When we passed the 2010 Constitution, we put a ceiling on Cabinet size. But the bureaucracy keeps expanding because the new administration of President William Ruto has taken advantage of the fact that the Constitution did not put a lid on the number of State departments and Principal Secretaries (PSs).

At 51, the new administration has the largest number of PSs that are entitled to attractive perks, including well-paid advisers and multiple sport utility vehicles.

Chief Administrative Secretaries — most of them election losers— with neither job descriptions nor work enjoy corporate sector terms and salaries.

The logic is simple: those who are out must remain out forever to make it possible for the government to retain and keep paying those who are well-paid.

Kenya needs bold moves to rationalise the public sector around a limited number of core functions and to make expenditures consistent with the resources at hand.

If the Ruto administration wants to achieve economic transformation, it needs a re-orientation of spending so that the bulk of taxes does not go to wages and debt service.

The writer is a former managing editor of the East African.


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