Excerpt : Terrorism

Friday, September 25, 2015

The government is in the red though not quite under. The executive may not admit but it is facing daunting challenges meeting its obligations as they fall due. One such basic obligation is the remuneration of its workers, due at the end of each month. Last month, many institutions including parliament and the judiciary, received their stipends a week after the month end. Many institutions face challenges accessing exchequer to implement their programmes. Parliament was briefly in darkness as power and water got disconnected for failure to settle their bills. 

The situation is even direr in other public institutions, including county governments that have been forced to borrow short-term from commercial banks exorbitantly. A report just released by the Controller of Budget reveals that as at end of June 2015, the national government had pending bills amount to nearly shs 112 billion. The latest cash crunch that delayed salaries last month is reportedly occasioned by a huge settlement of debt that has matured and had to be repaid.

And the growing size of our public debt seems to be the elephant in the room. It has grown from shs 1.6 trillion to shs 2.8 trillion in the past three years as the Jubilee government purses an ambitious ‘borrow and spend’ policy. By June next year, it is estimated that the public debt will grow to a staggering shs 3.5 trillion. The last financial year alone, it grew by a massive shs 483 billion, which includes an international sovereign bond and a Eurobond of US$ 2.75 billion. These amounts exclude sovereign guarantees.

In the current financial year, the government plans to spend nearly shs 400 billion to service public debt obligations. This figure is expected to rise to close to shs 600 billion by 2019. However, our revenues have remained largely stagnant at just over a trillion shillings at a time when public spending is projected to be shs 2.2 trillion. It’s a clear case of a government redeemably living well beyond its means. The country’s top watchdogs, the Auditor General and the Controller of Budget, have both warned that the increasing unabated appetite for borrowing poses a serious risk to the financial stability and economic growth of the country.

It is not difficult to see the effects of this policy. According to the Parliamentary Budget Office (PBO), the government’s absorption of the voted development budget has declined to just over 40% last year due to erratic cash flow from the exchequer. In the first quarter of this financial year, only 6% of the development vote has been released as Treasury grapples quietly with the bitter fruits of its imprudent financial management.  In the financial markets, the private sector has been crowded out as the government borrows voraciously. Consequently, the interest yield on the 182-day Treasury Bills and the one year bonds averaged 22% last week, up from 8% in 2012. Local lending rates have skyrocketed as the interbank rates hit 25% last week, giving an indication that the projected economic growth rate of 6.5% will not be met. The limited forex inflows and the huge import demand has raised the current account deficit to 13% of the GDP, just about the highest in the world.

According to PBO, the government needs a whooping shs 1.3 trillion to complete ongoing mega projects, excluding the Lamu Lapset project, proposed Turkana oil pipeline, SGR extension to Nakuru, JKIA Greenfield project and its proposed nucluear power plants, all which can only be financed by mortgaging this poor country whose teachers cannot place adequate food on the table. Its time the National Assembly stops rubber-stamping Treasury’s loans.

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