2019 Budget: A Minefield of unpredictable disasters

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By Kenya Confidential Economic Affairs Editor, Nairobi – June 13, 2019

National Treasury Cabinet Secretary Henry Rotich 2019-2020 budget is the seventh under the Jubilee administration. The National government plans to spend Ksh3.02 trillion, about Ksh 10 billion higher than the current (2018/19) budget.

There is an estimated deficit of Ksh 607.8 billion, an increase from Ksh 562 billion current financial year. Kenya is in a deep hole likely to be buried in debts and the sooner President Uhuru Kenyatta and his government stop digging any deeper, the better. Every single Kenyan is overburdened and chocking in debt – personally and on behalf of their motherland.

Rotich has opened a new front for a battle with politicians and public officers drawing multiple pensions while some of them also draw salaries from state corporations. Under the reforms which target the retirees, Rotich said that some pension benefits may be scrapped to ease the burden on the exchequer. He was however not categorical on the services to be scrapped.

“In order to contain the wage bill, I propose that we limit strictly the extension of service for the significant number of civil servants who are retiring after the age of 60 years,” he said, without telling Kenyans that most of the deadwoods are hired after retirement by the officers they promoted when they were their bosses – scratch my back I scratch yours syndrome.

Pensioners and their dependants may bear the bad news after Rotich announced a raft of changes to be implemented in the pensions budget, due to the burdensome wage bill that the Cabinet Secretary said was a serious concern and as a consequence, the Government had proposed various mechanisms including pension reforms.

Owing to notorious corruption-driven favouritism and scratch my back, I scratch yours mentality, the public service is a fertile ground of corrupt deadwood regeneration after many retire from mainstream civil service only to be appointed to head parastatal organisations or take up diplomatic appointments. They include former heads of civil service, permanent secretaries, military o and cabinet secretaries in an endless recycling of old men and women – who add no value to the establishments they are appointed to head.

The Kenya government is also over-burdened by its Parliamentrians love for money which keeps inventing ways of creating pension money for Parliamentarians even after serving a short span of five years. They behave as if money rains from the skies in Kenya.

Recently Parliament approved millions of shillings as what it called handshake for multi-billionaires retired Presidents Daniel arap Moi and Mwai Kibaki. Why Parliament thinks old people need money, more than babies born in hospitals without adequate medical facilities and drugs, remains a mystery. Why Parliament thinks billionaires and millionaires need more millions from taxpayers’ purse, beats reason.

The Cabinet Secretary said that the wage bill-cutting move will affect recruitment of various professionals into the public institutions. He added: “We will restrict new recruitment to key technical staff, security personnel, teachers and health workers. Further, Mr. Speaker, a cleansing of the wage bill will be undertaken to root out ghost workers.”

Rotich said that the Government will also shift from the Integrated Payroll and Personnel Database System (IPPD) to IFMIS Human Resource Module to facilitate seamless payroll management system. He said that his team is finalising the analyses with the aim of cost saving and that migration to IFMIS will even register more gains.

He lamented the upward scaling of the pension budget in recent years terming it uncontainable for the exchequer.

“Mr. Speaker, the pension budget has increased by over three-fold in the last 10 years from Ksh 25 billion in FY2008/09 to Ksh 86 billion in FY 2018/19. This is unsustainable,” he said.

The Treasury boss further revealed that in May 2019, his ministry conducted a clean-up exercise at the Huduma Centres countrywide and ascertained that there are 270,000 pensioners and dependants receiving money from the Government.

The Budget is not without hoodwinking tricks. Rotich smuggled a document seeking parliamentary approval for Ksh 3.48 billion towards the controversial Kimwarer dam project, under supplementary estimates to be tabled in the National Assembly in the next few days.

The money is part of Ksh95 billion included in the additional budget, according to confidential documents before the National Assembly Budget and Appropriations Committee.

Rotich’s documents show that the Treasury wants lawmakers to regularise the payment for the project that is under investigation by the Directorate of Criminal Investigation (DCI) thereby escaping the prosecution noose around his neck.

It is not clear if the money is part of the advance payments already wired to the contractor for the dam or additional payment for the development that has seen National Treasury CS Henry Rotich record a statement with the DCI.

Investigative agencies are on the trail of billions allegedly paid for Kimwarer and Arror dams in Elgeyo Marakwet County. The dams were expected to prove hydo-power and water for irrigation for residents of the region but ran into trouble when it emerged that money had been paid for non-existent projects.

The Treasury has admitted that Ksh7.8 billion was paid as advance payment for the dams. The money, according to Rotich, was paid under a facility agreement and commercial contract signed between the Kerio Valley Development Authority and the contractor, Service Assicurativi Del Comercio Estero (SACE) of Italy.

Approval for the payments means that Rotich’s Treasury will succeed in covering its tracks in the ongoing investigations.

Although the law allows the Government to spend money on emergency projects and later seek approval from the House, a look at majority of the projects listed in supplementary shows that not all were ‘emergency or unforeseen.’

Uncertainty over the Ksh11 billion paid to insure Kenya’s controversial dams’ loan has entered a new phase, with information classifying Kenya as a highly risky borrower. A message that will injure Kenya’s reputation a great deal.

Kenya, according to shifting grounds of the Italian-government owned insurer SACE, ranks just a point above the worst profile of borrowers at six out of seven. Burundi and Somalia are a few of the countries in category 7, a mark lower than Kenya and Rwanda among several others.

Such a poor rating is the reason the country is paying the exorbitant price to insure the Sh63 billion loan, raising concerns as to whether it was prudent to take the credit in the first place. Pricing of the insurance is at the heart of a live probe by the Directorate of Criminal Investigations (DCI), which is seeking to establish criminal intent and likely kickbacks to Kenyan officials.

DCI investigators have traveled to Italy in search of information relating to the procurement of the loans and how the money has since been spent, including likely diversion from the projects.

Inspection of the proposed site by police confirmed that work on the dams was yet to start, several months after the money was released by the Italy-based lenders.

SACE has since denied that any of its officials have been questioned. “No SACE representative has met with Kenyan detectives nor provided them with documents related to the insurance policy,” the insurer said through its press office.

And in yet another twist, SACE now claims that loan term is 20 years and not 10 as earlier indicated by the same office. “The horizon of risk (20 years of which 5 years’ disbursement and 15 years’ repayment period); the percentage of risk covered (100 per cent); the premium applied by SACE for this transaction is in line with the Minimum Premium Rate,” the firm wrote.

The extended tenure and poor country risk profile are the reasons the insurer levied nearly 1.9 per cent (184.39 basis points) in premium per year.In an earlier response soon after the scandal began to unravel, SACE said of the shorter repayment term and defended the loan pricing as being guided by international best practice.

Losers in this year’s budget are Kenyan gamblers and drinkers who have been dealt a huge blow after Rotich proposed the introduction of excise duty on betting activities at the rate of 10 per cent of the amount staked. This he said is aimed at curtailing the negative effects arising from betting activities.

“Betting has become widespread in our society and its expansion has had negative social effects, particularly to the young and vulnerable members of our society. In order to curtail the negative effects arising from betting activities,” Rotich said.

This comes after MPs last month proposed a law introducing tough tax measures and minimum bets to regulate the industry.

The Gaming Bill 2019, sets hefty licensing fees for companies seeking to set up base in Kenya and raises the minimum amount of a bet.

For the first time, betting firms in the country will be required to pay Ksh 100 million for gaming securities, to serve as a cushion to gamblers should the betting firms refuse to pay a ‘windfall’.

In the budget, Rotich proposed excise duties on alcohol and tobacco to be increased. Under the new proposal, a 750ml bottle of wine will have an excise duty of Sh136 which is Sh18 more from the current rate.  The duty of a bottle of whiskey will go up by Ksh24 to Ksh182 for a 750ml bottle.

Smokers have also not been spared in the new budget. The excise duty on a packet of 20 cigarettes will increase by Ksh8 to Ksh61 per packet.

Below are the major beneficiaries of the 2019/2020 Budget allocations by the Treasury.

1. Recurrent expenditure – KSh 1.7 trillion

2. County governments – KSh 310 billion

3. Equalisation fund – KSh 5.8 billion

4. Contingency fund – KSh 5 billion

5. Big Four Agenda – KSh 450.9 billion

6. Agriculture, water and irrigation – KSh 72.3 billion

7. Transport (SGR, LAPSSET project and Mombasa port development ) – KSh 74 billion

8. Construction, rehabilitation and maintenance of roads – KSh 180.9 billion

9. Energy- KSh 68.9 billion

10. National security – KSh 190.3 billion

11. Education – KSh 202.5 billion

12. Sports, Culture and Tourism – KSh 17 billion

13. Social protection/ Affirmative Action – KSh 11.6 billion

14. Women and youth empowerment – KSh 1.3 billion

The Treasury Secretary did not make any mention of the Ksh 10 billion allocation reparations for historical injustices victims announced by President Uhuru Kenyatta during the State of the Nation address in May. Neither did the president himself direct the Treasury to set aside funds for the victims on Madaraka day during which he directed Pending Bills to be paid.

Glorification of freedom fighters is an annual ritual on June 1 Madaraka Day, October 20th Mashujaa Day and December 12 Republic Day. Reparations to Mau Mau survivors and dependants of those who died during the 1952-1960 freedom struggle is political lip service.