Uhuru and Raila have ignored pleas from Kenyans, BBI is doomed to fail

Things are getting worse on the ground. The country is haemorrhaging economically, and it would take years, perhaps, decades to recover.

Having chosen to ignore repeated warnings against unrestrained borrowing, the Captain has steered the vessel onto troubled waters and hit outcrops that have punctured the hull.

The ship has listed dangerously and risks sinking to the bottom of the sea. The captain may attempt to calm terrified passengers by offering false promises or busy himself with rearranging seats on a sinking Titanic as President Kenyatta is doing with the BBI, but either of these moves are pointless. Like a good captain, the President must acknowledge his errors and earnestly embark on mending the boat.

The government is facing cashflow problems. A rapidly contracting economy has curtailed revenues at a time when Covid-19 is exerting unprecedented pressure on Kenya’s healthcare system. The situation is exacerbated by worsening debt crisis and a rapidly weakening shilling.

These and other challenges have accelerated business bankruptcies, closures, and relocations to other countries. And if the trend holds, hundreds of thousands of Kenyans are likely to lose their jobs in the coming months.

New taxes

After holding its value for more than a decade, the shilling appears to be sliding. In a matter of weeks, it has lost roughly 10 per cent of its value. Although the government could attempt to stabilise it, debt-related challenges are likely to cause the currency to lose more ground. Since the government must buy dollars to retire its dollar-dominated debt, the selling of more shillings would dilute the shilling further.

And when the shilling sheds 20 per cent value, the country’s external debt stock will essentially increase by the same magnitude. Considering how currencies of other debt-stricken countries have plummeted, it is entirely possible that by August 2022, the shilling would have depreciated 100 per cent.

The President finds himself in unenviable place of being caught between a rock and a hard place. He must choose to either raise taxes in a collapsing economy, or default on the national debt. It appears he is keen on repaying the Chinese and other creditors more than reviving the economy. The Treasury recently signalled that it would institute a raft of new taxes as early as January next year. This is obviously counterproductive. In difficult times like these, the country needs tax cuts to stimulate and lift a depressed economy.

Cabinet Secretary of Interior and Coordination of National Security, Fred Matiang’i let out the cat albeit inadvertently. He seemed to acknowledge that things were bad when he asked state employees to expect layoffs and salary cuts.

In the same week, the Commission on Revenue Allocation wrote to governors and essentially indicated that it was not be in position to allocate the additional Sh53.5 billion agreed upon by the Senate for the implementation of the third basis of revenue allocation.

Furthermore, the government also reversed its May stance and was now in favour of suspending its debt payments under the G20’s Debt Service Suspension Initiative designed to help countries respond to the coronavirus. If implemented, the state will retain a total of about 75 billion shillings in deferred debt repayments.

Recurrent expenditure

There have been other signals that the Jubilee government was at the point of insolvency. Having dropped his signature Big 4 Agenda, the President is reportedly seeking Sh400 billion from the World Bank and the IMF to meet its recurrent expenditure including paying of salaries.

Given this bleak reality, what is the significance of BBI shenanigans at this hour? Could Raila Odinga be confusing and misleading the President on purpose? It’s naïve that a government struggling to transfer 15 per cent of funds to counties can actually allocate 35 per cent.

And then there is the absurdity of laying off lecturers, doctors, nurses, and teachers while at the same time pushing for a bloated Parliament and a markedly expanded Executive!

The worsening economy, a sliding shilling and the possibility of mass layoffs and default would certainly bring the push to amend the Constitution to a halt.

Although the President and Raila have chosen to ignore pleas from Kenyans, they certainly must deal with angry gods who have conspired to frustrate their intentions. Time will tell.

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