AVOID­ING THE CRUNCH >

JA­SON LAKIN

The East African - - FRONT PAGE - Pic: File

The facts about Trea­sury, coun­ties and the state of Kenya’s fi­nances

The Na­tional Trea­sury has re­cently pub­lished rev­enue and ex­pen­di­ture in­for­ma­tion in the Na­tional Gazette for the first quar­ter of 2017/18. What does this pub­li­ca­tion tell us, and what doesn’t it tell us?

To­tal rev­enue for the first quar­ter is down sub­stan­tially ver­sus the same pe­riod last year: From Ksh460 bil­lion to Ksh408 bil­lion. How­ever, the way this in­for­ma­tion is pre­sented tends to muddy the wa­ters. The big­gest el­e­ments of re­ported rev­enue re­ally in­volve three items, only one of which is tra­di­tion­ally thought of as rev­enue. Tax, which is by far the largest rev­enue stream, is ob­vi­ously a rev­enue source. But the other two el­e­ments — bor­row­ing (do­mes­tic and com­mer­cial) and the bal­ances car­ried for­ward from the pre­vi­ous year — are more am­bigu­ous. For ex­am­ple, nor­mally, we think of bor­row­ing as deficit fi­nanc­ing to fill gaps be­tween ex­pen­di­ture and rev­enue, rather than as a rev­enue stream.

When it comes to cash flow, it is true that all of these streams help to en­sure we can make pay­ments. If we look just at tax rev­enue, which makes up more than half of the to­tal in both 2016/17 and 2017/18, then it has grown by a re­spectable 10 per cent since last year. Thus, the de­cline in “rev­enue” is con­fined to a smaller open­ing bal­ance, and less bor­row­ing than last year. The open­ing bal­ance in 2017/18 was just over half last year’s fig­ure (Ksh60 bil­lion v Ksh31 bil­lion). The same was true for bor­row­ing: Do­mes­tic and com­mer­cial bor­row­ing was at Ksh94 bil­lion last year; this year, there was no com­mer­cial bor­row­ing and do­mes­tic bor­row­ing was at Ksh47 bil­lion.

How has this de­cline in avail­able cash af­fected spend­ing? Re­cur­rent min­is­te­rial spend­ing is up 37 per cent over last year, sug­gest­ing that there has been no im­pact of re­duced cash on that side of the bud­get. The bud­get for the year is ac­tu­ally only 11 per cent higher than last year, so this per­for­mance is quite im­pres­sive. We will see be­low that the true fig­ure is closer to 25 per cent above last year, but that is still ro­bust.

On the other hand, pub­lic debt ex­pen­di­ture is down for the first quar­ter this year com­pared with last year’s 34 per cent. That is not be­cause pub­lic debt pay­ments for this year are lower; in fact, our pro­jected debt pay­ment in 2017/18 is 33 per cent higher. We will have to pay Ksh622 bil­lion in debt this year even­tu­ally, but we are pay­ing at a slower rate than when we paid Ksh467 bil­lion last year. The higher re­cur­rent ex­pen­di­ture in the first quar­ter now raises a ques­tion: are we spend­ing money now that we will need to re­pay debt later?

On the de­vel­op­ment side of the bud­get, spend­ing for the first quar­ter is marginally be­low last year’s spend­ing: Ksh39 bil­lion this year com­pared with Ksh42 bil­lion last year. Given a some­what smaller de­vel­op­ment bud­get this year, this means that in both years, we were at about 10 per cent of our an­nual tar­get at the end of the year. This is seem­ingly not that wor­ry­ing, though it is hardly in­spir­ing.

This leaves coun­ties. By this time last year, coun­ties had re­ceived Ksh55 bil­lion. This year, they have re­ceived… noth­ing. Well, not quite noth­ing. They have re­ceived none of their statu­tory dis­burse­ments, but they have re­ceived Ksh20 bil­lion in “ad­vances” from the Na­tional Trea­sury. This amount is listed un­der the Na­tional Trea­sury re­cur­rent bud­get, and is why I said ear­lier that the true amount of re­cur­rent ex­pen­di­ture is ac­tu­ally 25 per cent more than last year, rather than 37 per cent as it ap­pears. There is no in­for­ma­tion in the Gazette about the dis­tri­bu­tion of these ad­vances to dif­fer­ent coun­ties, which is a ma­jor trans­parency gap.

Ac­cord­ing to the Na­tional Trea­sury, it has not dis­bursed statu­tory flows be­cause of a dis­crep­ancy be­tween the County Al­lo­ca­tion of Rev­enue Act, ap­proved by par­lia­ment, and the dis­burse­ment sched­ule to coun­ties, also ap­proved by par­lia­ment. Nei­ther of these doc­u­ments is pub­licly avail­able, and it is baf­fling to con­sider that the last Par­lia­ment was ca­pa­ble of the level of

The big­gest el­e­ments of re­ported rev­enue re­ally in­volve three items, only one of which is tax.” Pub­lic debt ex­pen­di­ture is down for the first quar­ter this year com­pared with last year’s 34 per cent. That is not be­cause pub­lic debt pay­ments for this year are lower

in­com­pe­tence nec­es­sary to cre­ate such a sit­u­a­tion.

Based on last year’s first quar­ter re­turns, and in­flated for the in­crease in county fund­ing this year, Trea­sury should have sent Ksh59 bil­lion to coun­ties, but sent only Ksh20 bil­lion. This means that there is a bal­ance of roughly Ksh40 bil­lion that is com­mit­ted but un­spent. Trea­sury re­ports a bal­ance in the ex­che­quer ac­count of Ksh56 bil­lion, but tak­ing into ac­count this Ksh40 bil­lion com­mit­ted, there is only Ksh 16 bil­lion re­main­ing.

That is not enough to cover the gap in debt pay­ment that we iden­ti­fied above. Given the chal­leng­ing po­lit­i­cal and eco­nomic con­text, our new par­lia­ment must be vig­i­lant in over­see­ing ex­pen­di­ture to avoid a re­peat of the 2015 cash crunch. Ja­son Lakin is head of re­search for the In­ter­na­tional Bud­get Part­ner­ship. E-mail: ja­son.lakin@gmail.com

The Na­tional Trea­sury of Kenya.

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