In Summary
  • There have been some meetings between President Kenyatta and his economic team in the past few weeks.

  • But the message from these meetings suggests it is business as usual.

  • Nation building cannot be accomplished overnight and the administration should not make haste to accomplish everything it promised.

Our economy is not in a crisis yet, but is headed there unless the Jubilee administration takes concrete steps to forestall an economic meltdown. It is not clear that the Jubilee administration is addressing the issues we face with the urgency that is required.

There have been some meetings between President Kenyatta and his economic team in the past few weeks, but the message from these meetings suggests it is business as usual.

Kenyans were hoping to hear Jubilee’s plans for credible fiscal and financial (banking sector) reforms, how we will address the debt trap we are about to get into and plans for dialogue between the private and public sectors on how best to prioritise dynamic constraints and identify practical solutions to the current economic challenges.

Instead, the discussions seem to be about how we shall continue in the current path of ‘economic transformation’ and how the Jubilee administration will address the promises it made during the recent political campaigns.

It looks like funding free primary education, universal health, mega projects and other things promised during the campaigns will be the priorities this second term. This, despite profit warnings by many listed companies that are likely to lead to less revenue for the government.

PILING DEBT

All indications are that we will continue to pile on debt to finance these plans.

The truth of the matter is that this is not sustainable.

Let the people in Jubilee’s inner circle not deceive or delude the President into believing otherwise.

The administration needs to go beyond the usual generalities and come up with concrete steps and well thought through action plans to save us from the looming debt crisis. Here are a few suggestions:

CAMPAIGN PROMISES

First, there is nothing sacrosanct about campaign promises.

Nation building cannot be accomplished overnight and the administration should not make haste to accomplish everything it promised in one breath even when the prevailing economic environment does not allow. Let these promises not turn out to be the long rope with which Jubilee will hang itself.

Second, our economic prospects depend on whether President Kenyatta can restore fiscal discipline.

This, and transparency will be needed to achieve macroeconomic stability, debt management and market credibility.

The recent rescheduling of part of commercial banks syndicated loans means we face a debt trap cycle that is triggered by pressure to refinance by the government; leading investors to demand higher interest rates, which then makes the country’s debt burden onerous.

BORROW TO PAY DEBTS

The government then has to borrow to pay its debts. When that cycle takes hold in a truly vicious way, the only ending is default. We have no choice but to curb the accumulation of new debt if we are to forestall a debt-induced economic crisis.

To do this, the government will need to achieve a sufficient primary fiscal surplus for at least the first three years of this term. Then work on improving macroeconomic conditions.

This will help reduce financing costs over the medium term. More taxation and revenue increases seem not to have induced debt reductions, so spending restraint is the right way to reduce the fiscal deficit and the debt. And the best way to cut spending is to downsize.

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