Here’s how to give Kenyans value for cash

 By David Ndii

A couple of years ago, I participated in an annual parliamentary pre-budget workshop in which the Treasury presents its proposals to the money committees.

I was there as a resource person for Parliament. Strengthening Parliament’s budget and economic policy oversight has been one of my pursuits for the better part of two decades, and which, if I may say so, has not exactly endeared me to the mandarins at the Treasury.

This particular workshop took place against the backdrop of a severe drought and a global financial crisis and the economy was yet to recover from the post-election violence.

So, as you might imagine, the members were eager to hear what proposals the government had to respond to these economic shocks. The Treasury mandarins made their usual slick, somewhat patronising presentations.

Then Deputy Speaker Farah Maalim was first to respond. Do you have microeconomists in the Treasury? he asked. You could tell they did not see that one coming and they did not see where he was going with it.

They did not answer, so he went on to make his point. He observed that crops had failed, livestock were dying, small businesses were struggling, and all the Treasury could present to Parliament was the same old “World Bank and IMF macroeconomic templates” that they did every year.

I will leave you to your imagination on how the rest of the session went. But clearly, the riposte had the desired effect for when the budget came out, its highlight was the famous economic stimulus package, which had, among other goodies, the fish ponds project that I have written about previously.

I was reminded of this incident by two contrasting contributions to the wage bill debate. One was by Machakos Governor Alfred Mutua and the other by the Cabinet Secretary for Finance, Mr Henry Rotich.

Dr Mutua’s makes a straightforward case. The problem with our public finances, he says, is not the wage bill, but rather the inflated cost of goods. The government, he writes, bought water at Sh100 a bottle, which sells at Sh20. It paid Sh400,000 for furniture that would cost Sh50,000.

Dr Mutua is a person who puts his (well our) money where his mouth is. According to newspaper reports, his recreational park cost Sh20 million.

Had that been a national government project, we’d be talking Sh400 million, and it would still not be complete.

Dr Mutua was criticised by the people he calls “process-oriented bureaucrats” for buying second hand cars. His defence is simple and straightforward. “Why should I or my officials drive new, expensive cars whereas the rest of Kenyans buy reconditioned vehicles?”

CHASING SHADOWS

So he bought second hand cars for Sh1.7 million instead of new ones for Sh6 million. For 20 cars, he would have saved Sh86 million, which, he says, he used to buy security vehicles and ambulances. He is now spending Sh650 million on a road that the KeNHA had estimated would cost Sh1.3 billion.

Behind the wage bill debate lies a broader fiscal reform agenda. High and unsustainable spending on public wages crowds out resources and poses serious risks to macroeconomic stability.

The reform agenda is intended to reorient public expenditure towards addressing our development challenges. It is part of the government’s fiscal policy strategy, which focuses on maintaining a strong stream of revenue and containing the growth of total expenditure… and on, and on, and on…

What I’m I driving at? We have, I am afraid, a generation of technocrats, who after two decades of implementing macroeconomic reforms, have lost touch with reality. They are in permanent reform mode not because there is a need for it, but because they do not know anything else.

They are like the early African catechists who would lead the congregation in singing Latin Mass without the foggiest idea what they were talking about. It is all very well, when they are implementing an IMF programme because Washington writes the script. The problem now is that they don’t have a script.

My first real encounter with this was in 2003, when Narc came to power. For a decade, the government had been running a tight monetary policy regime to mop up the money printed through Goldenberg in 1992 and more to finance the 1997 elections. By around 2000, macroeconomic stability had been restored, but the government kept the regime in place. We ended up with low inflation and a comatose economy.

We proposed to loosen monetary policy. I recall the moment very clearly — it was at a workshop in Leisure Lodge in Kwale.

The then Central Bank Governor nearly jumped out of his seat. The IMF representative looked like he’d seen a ghost. After their loud protestation and exhortation about the horrors of inflation, we posed a simple question.

Which is preferable, a patient in a coma (very stable), or one who is active and running a fever? Loosening monetary policy carried the day. But it took a change of governor for it to be implemented.

The situation we are in is not dissimilar to 2003. We are at a turning point but we have left the steering to fellows who don’t know how to turn the ship. So, they keep telling us that we must keep on a straight course.

According to Dr Mutua’s examples, we could save at least a third of our non-wage expenditures by buying goods at the correct price. This is not rocket science. How much money are we talking about? This year, the expenditure on goods and services is Sh750 billion. One third of this is Sh225 billion.

The wage bill of the central government is Sh284 billion. The most we could save from retrenchment is 20 per cent, which works out to Sh56 billion. Even if we take the government’s inflated total public wage bill of Sh521 billion, we would have to retrench half the public service to save Sh225 billion.

But this is not the Treasury’s top priority. The government, the CS writes, has made fully operational the integrated financial platform to handle the range of its transactions and the procure-to-pay module, and the government payment gateway also brought it. Latin Mass.

TWO RATIOS

Is it these efforts that will be complemented by “enforcement of cost benchmarks for all projects and consumables.” More Latin Mass.

Dr Mutua: “We have the capacity to construct double the number of roads, hospitals, schools and police stations if we streamline our processes”. Microeconomics. “Our job is not to make the cartels happy. When corruption fights, we will fight back”. Leadership.

The CS cooks numbers, too. He says that the wage bill is Sh521 billion or equivalent to 54 per cent of ordinary revenue. There are two tricks here. The first is giving the consolidated public wage bill, which includes that of the counties and all parastatals as a percentage of central government revenue. But counties also collect revenue, as do parastatals. Some parastatals included in the wage bill are fully self-financing.

The correct and honest way of presenting this is to have two ratios, the central government wage bill over central government revenue, and a consolidated public wage bill as a percentage of consolidated revenues, to compare apples with apples, so to speak.

The first ratio, that is, central government wage to domestic revenue is 29 per cent. I do not have the figure for consolidated public revenues as the government does not publish it, but my guesstimate is that it should be no more than 25 per cent. These people must think we are completely stupid.

You may note that I have used domestic revenue not ordinary revenue like the CS. This is the second trick. Ordinary revenue means tax revenues. The purpose of this trick is to exaggerate the wage revenue ratio.

The presentation made by the Planning and Devolution CS to the wage conference referred to a wage bill revenue ratio of 51 per cent. Excluding the A-in-A bumps it rises to 54 per cent. It’s not much, but when you are fabricating a crisis, every little helps.

What is all this obfuscation and data cooking in aid of? Insincerity, wrote Orwell in his essay Politics and the English Language, “is the great enemy of clear language. When there is a gap between one’s real and one’s declared aims, one turns instinctively to long words and exhausted idioms.”

The CS concludes: “It is clear from the foregoing that our debate about the wage bill is, indeed, about a broader fiscal reform agenda covering expenditure rationalisation, expenditure efficiency and effectiveness and enhanced revenue effort. Any resources raised through the implementation of these reforms will be channelled into a Transformation Fund.

The fund will be applied only to priority projects chosen through consultations.” English translation: We are looking for money for laptops and the standard gauge railway.

Orwell: “In our time, political speech and writing are largely the defence of the indefensible. Thus, political language has to consist largely of euphemism, question-begging and sheer cloudy vagueness.”

Dr Ndii is managing director of Africa Economics. ndii@netsolaafrica.com

Article originally published by the daily nation