March 14th, 2009
Central Bank of Kenya. Photo/FILE
By SAMUEL SIRINGI
In Summary
- Blunders like a bloated Cabinet of 42 ministries and 52 assistant ministers, and scandals in the energy and agricultural sectors have contributed to the government’s slide towards bankruptcy, which threatens to derail crucial projects
A series of blunders and scandals are to blame for the government’s consistent slide toward bankruptcy, which threatens to derail funding of crucial programmes over the next three months.
The move by coalition partners – the Party of National Unity and the Orange Democratic Movement – to increase the number of ministries to 42, has weighed heavily on Treasury, contributing to the financial shortfall of Sh25 billion the country faces.
This money is required to enable the government to accomplish its goals for the financial year, which ends in three months.
Further, loopholes in government operations saw corrupt officials steal huge chunks of cash that would have come in handy in fighting the current food shortage that has so far cost hundreds of millions of shillings.
The scandals that have been major drains on the economy in the past year include those in the energy sector where Sh7 billion was lost, and the maize intrigues that saw flour prices pushed up to unprecedented levels.
Matters have not been helped by the global financial crisis which has shrunk international markets and reduced the value of millions of dollars remitted by Kenyans living abroad substantially.
The government has admitted it faces a financial crisis worsened by delays in procurement and donor fund disbursements, which means there is less available for ministries’ expenditure.
Finance minister Uhuru Kenyatta said to bridge the Sh25 billion shortfall, the government will postpone to the next financial year the recruitment of new officers and implementation of new projects.
Other areas of expenditure the government expects to cut costs in include domestic and international travel, conferences and workshops, training and furniture.
“We are doing this as part of our efforts to rationalise expenditure to ensure only priority projects and activities are implemented,” Mr Kenyatta said.
“This exercise also allows us to create fiscal room to fund other priority expenditures that will bring an immediate positive effect on growth and poverty reduction, such as drought mitigation and public works.”
By December last year, ministries had received Sh47 billion less than the programmed target of Sh309.9 billion.
Under the coalition agreement, at least 10 additional permanent secretaries were enlisted in the new government, causing increased expenditure in salaries.
There has also been need to recruit new staff in the newly created ministries, some of which used to be departments but were hived off previous dockets to form ministries.
Also, the Vice-President, Prime Minister and his deputies each receive salaries and allowances from Parliament totalling to Sh800,000.
In addition, as ministers, they receive Sh200,000 ministerial allowance, Sh100,000 house allowance and Sh23,400 domestic allowance.
Recently, head of civil service Francis Muthaura proposed that the PM’s and VP’s salaries be raised to Sh1.3 million each – Sh800,000 salary, Sh300,000 ministerial allowance and Sh200,000 as house allowance.
He proposed that deputy prime ministers Musalia Mudavadi and Uhuru Kenyatta each earn Sh950,000. Of this, Sh500,000 will be the salary, Sh250,000 ministerial allowance, Sh150,000 house allowance and Sh50,000 domestic staff allowance.
In the coalition government that was forced upon Kenyans by last year’s bloody post-election violence, President Kibaki named 52 assistant ministers and 42, apparently to appease more MPs in the coalition.
According to University of Nairobi law lecturer Patrice Lumumba, the grand coalition should return to the drawing board with a view to cutting down the number of ministries to 17.
“Let ODM and PNU renegotiate the national accord to rationalise government and do away with the many sinecure positions,” he said.
The education sector seems to be one of the biggest casualties of the government’s mistakes of omission and commission with three key projects currently struggling.
Treasury was on Friday forced to release Sh3.7 billion to resuscitate the free day schooling following a sustained media campaign. Funds for the programme were supposed to have been released by January.
Treasury also expects to send some Sh2.5 billion to primary schools this week, although the Education ministry has announced it had withheld Sh1.5 billion meant for the purchase of textbooks.
Despite the release of the funds, the state still needs at least Sh5 billion more to complete the expected expenditure for first term’s free learning programmes.
Also in jeopardy in the education sector is the recruitment of 16,000 intern teachers who were to be hired as part of the move to ease a staff shortage in schools.
Although the programme was endorsed last year, it has yet to take off due to lack of adequate funding.
Seeking to shed light on the ongoing crisis, Finance minister Uhuru Kenyatta said on Friday the importation of maize “put pressure on our budgetary resources”.
Mr Kenyatta added that by December last year, the total ordinary revenue collection was Sh216 billion, which was 98 per cent of the Sh221.8 billion target. Despite this, economic growth prospects have been revised downwards from 5.8 per cent to about three per cent, he said.
Mr Kenyatta warned that ongoing global recession will reduce demand for “our exports including tea, horticulture and coffee”.
On corruption, Mr Kenyatta said the government was determined to fight corruption as attested by suspensions handed to bosses of Kenya Tourism Board and Kenya Pipeline corporations over claims of financial impropriety.
A forensic study of the transactions at the National Cereals and Produce Board was expected to expose any cases of corruption in the grain dealer, he said.
“While significant progress has been registered toward improvement of governance and the fight against corruption, many challenges remain,” he said.
“We need to appreciate the virtues of good governance and the harm caused by corruption to the political and economic systems.”
On Monday, Education minister Sam Ongeri said the food shortage in the country threatened gains made in education in terms of access and quality.
“Rising costs of living occasioned by both global recessionary trends and increased costs of production especially in the food sector have trickled down to institutions of learning, thus creating a negative impact on government funding for free primary and free day secondary education,” he said.
He said there was stiff competition for government resources among important sectors.
He said the Sh117.5 billion resource allocation to the education sector was inadequate to cater for the sector’s envisaged programmes.
Problems for the education sector will be further compounded by the fact that a partnership programme, Fast Track Initiative, that provides cash to the sector is about to end.
As a result, said Prof Ongeri, “we are likely to experience huge financial gaps”.
Recently, Treasury permanent secretary Joseph Kinyua told a donors’ meeting in Nairobi that the government was in dire need of Sh70 billion to seal an added budget deficit of Sh27 billion, needed to fund importation of maize, and restock diminishing usable foreign reserves at the Central Bank of Kenya.
Prime Minister Raila Odinga is also on record saying, “Our foreign exchange earnings are on a decline at a time when we must expend a large amount of foreign exchange to pay for emergency imports of maize”.
“This development has forced us to draw down our official foreign exchange reserves to a low of 2.8 months of import cover,” Mr Odinga said.
A nation’s stock of reserves acts as a buffer against unforeseen adverse shocks in the international market, acting as a psychological cushion to importers and foreign investors as it mirrors a country’s ability to meet its international obligations.
The Central Bank of Kenya (CBK) also uses it occasionally to intervene in the foreign currency market to stabilise currency from speculation and other market shocks.
The usable foreign reserves account balance also forms an important ingredient in the government’s foreign currency credit rating with a diminished reserve cushion attracting possible negative implications. A negative rating would mean that should the government decide to borrow, it would pay a high interest to lenders.
The CBK Act requires the bank to “maintain a reserve of external assets at an aggregate amount of not less than the value of four months’ imports as recorded and averaged for the last three preceding years.”
The CBK blames the diminishing import cover to “reduction in reserves level on account of official debt repayments as well as a larger import bill” and volatility in the forex market.
The fall in reserves, the government says, could not have come at a worse time when the country is preparing to import at least eight million bags of maize to feed the hungry.
The country has applied for a soft loan under the Exogenous Shock Facility, a line of credit open to IMF member countries going through “a significant negative impact on the economy that is beyond the control of the government.”
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