The government is in a financial abyss and struggling to pay salaries, the President’s economic adviser has admitted.
The admission by David Ndii, President William Ruto’s economic adviser, brings to the fore the behind-the-scenes struggles by the Treasury to balance government revenue, expenditure and debt repayments.
Multiple loans are maturing in their billions, yet revenue is not growing in tandem, Dr Ndii revealed yesterday, attributing the tax target misses to businesses not reporting profit growth, thus shrinking tax growth. “Debt service is consuming 60 per cent plus of revenue. Liquidity crunches come with territory,” he tweeted on his official handle.
His remarks came hours after it emerged that the state had yet to pay public servants their March salaries. Thousands of government workers, including MPs, county employees, IEBC staff and those at the Kenya Broadcasting Corporation, went for the Easter weekend without monthly pay.
Dr Ndii said the government had to choose between paying salaries and servicing public debt. “…When maturities bunch up, or revenue falls short, or markets shift, something has to give. Salaries or default? Take your pick,” he said, adding that retrenching public servants to cut the wage bill is also on the table.
Dr Ndii’s admissions indicate that the government is walking on a tightrope, with sources at the Treasury intimating that the cash crunch was a result of heavy debt maturities at the end of March. A similar situation is expected in September when more debt maturities are expected, the source said. March salaries will be paid “in a matter of days” from the Kenya Revenue Authority’s tax collection, the source added.
Dr Ndii hinted at the high cost of recent anti-government protests called by the opposition, indicating the instability that resulted in shutdowns had affected revenue collection.
“The first obligation of a government is survival and political stability. The more the dynasties foment destabilisation the more we will have to spend on political capital. If push comes to shove, handshake is always an option. How much [do] you think that will cost?” he tweeted in response to a follower who had challenged the economist on the need to cut back on the bloated government.
The Kenya Kwanza administration, upon assuming power in September last year, lifted subsidies on basic goods, arguing subsidising consumption was a waste of money. The government further announced that the Treasury would save Sh9.49 billion from the scrapped fuel subsidy alone. Other savings, the Ruto administration said, would come from the removal of subsidies on tuition fees for learners in public primary and secondary schools.
In the supplementary budget I for 2022/23, the National Assembly declined to approve a Sh4 billion unga subsidy. The administration then embarked on tax increases that saw a 20 per cent levy on M-Pesa transactions, internet transactions duty went up to 16 per cent, 15 per cent capital gains tax on the transfer of property and VAT on e-books and videoconferencing, among others.
According to the Azimio coalition, the net effect of all this was supposedly to increase revenue to between Sh4 trillion and Sh5 trillion annually and enable the government to finance its operations, yet the situation has been degenerating since December marked by periodic salary delays.
Azimio criticised the government for failing to alleviate Kenyans’ suffering, with National Assembly Minority Leader Opiyo Wandayi on Friday calling for an inquiry into the management of key state institutions, citing the continued accumulation of public debt. The counties, too, have yet to receive funds from the National Treasury—for four months now.
Additional reporting by David Mwere