Thursday, 12 June 2014

An Examination of Kenya’s KES 1.8 Trillion FY 2014/2015 Budget

Dr. Purna C. Samanta of the University of Nairobi taught me Public Finance and Fiscal Policy during my undergraduate studies. In his lectures, he mentioned Wagner’s Law- the Law of Increasing State Spending, which stipulates that public expenditure will tend to rise constantly as a result of political pressure for social progress. From his lectures, I also noted that Peacock-Wiseman Hypothesis, which is predicated on the presumption that public expenditure will increase due to increase in revenue collected, holds true for most economies. Now, this trend was represented today as Mr. Henry Rotich read the FY 2014/2015 Budget.

 Over the years, Kenyans have witnessed phenomenal increase in public expenditure. However, this was not unprecedented. With the newfangled constitutional dispensation, old duties are being undertaken on a larger scale and new ones undertaken in the implementation of devolution. A total of KES 226.7 Billion were allocated to County Governments. This represents 43% of audited revenues. This percentage is way above the 15% threshold stipulated by the constitution. The Equalization Fund received KES 3.4 Billion to be shared among the fourteen marginalized counties.

Maintenance of internal security is equally a significant factor in government expenditure increases.
Enforcement of law and order to maintain peace and order has culminated to expansion of the police force and administrative systems. There can never be economic growth without security. KES 66 Billion have been allocated for policing services out of which KES 6.7 Billion has been set aside to lease 2,700 aircrafts and motor vehicles in order to bolster aerial and ground crime patrol as well as rapid response. Moreover, KES 3.3 Billion is allocated to enhance security operations with KES 2.9 Billion for training and recruitment of extra 10,000 police officers. To modernize and upgrade security equipment, KES 1.6 Billion has been set aside. KES 1.3 Billion is for housing of police officers as well as development of new housing units, KES 1.8 Billion for medical insurance schemes for the police, KES 1.8 Billion for construction of a Control and Command Centre to bolster policing, KES 1.8 Billion to deter poaching, KES 1.3 to enhance security of Jomo Kenyatta International Airport (JKIA). The government is also committed in rolling out a surveillance system across the country to deter terrorists and criminals.

Kenya, like every other state pays greater attention to defense preparedness against possible foreign attacks. Consequently, public spending on equipping Kenya Armed Forces with latest armaments has been on the rise. As enunciated by Adam Smith, defense is better than opulence. The government has embarked on modernization of security systems. KES 71.3 Billion has been allocated to Kenya Defense Forces (KDF). Additionally, increase in population call for better medical and health facilities culminating to reduction of mortality rates. The state is likely to spend more on schools, hospitals, roads, and railways.

 Most modern have adopted the welfare economic model that provide free medical facilities, education, and other social security measures. The allocation towards secondary schools free tuition has risen to KES 28.2 Billion indicating a 33% increase, that of Free Primary Education (FPE) to KES 13.5 Billion also representing an increase of 33%. KES 2.3 Billion has been allocated towards school feeding program and KES 400 Million to supply sanitary towels. Moreover, KES 0.7 Billion was allocated towards the provision of basic healthcare, KES 4.0 Billion for free accessibility to maternal healthcare. The government realizes that economic transformation yields welfare losses for other categories of people, especially the vulnerable groups. For this reason, KES 7.2 Billion was allocated to vulnerable children and orphans, KES 4.9 Billion for the elderly, KES 0.8 Billion for the disabled (extreme), KES 0.3 Billion for people with disabilities under cash transfer programs.
 Population growth prompts migration of people to urban centers in search of employment
opportunities. Existing cities thus expand as new ones come up. This requires huge public spending in provision of civic amenities like street lighting, water, roads, sewerage, houses, zoos, parks, schools, transport etc.  Civic administration expenditure also rises.KES 41  Billion was set aside to complete on-going roads throughout the country, KES 22.4 Billion to maintain existing roads, KES 42.3 Billion to construct roads, KES 1.0 Billion to decongest Nairobi’s road junctions. KES 10 Billion was allocated to construct other roads through Annuity Financing Approach. Youth Enterprise Fund was allocated KES 300 Million, KES 200 allocated to Uwezo Fund, and KES 200 Million for Women Enterprise Fund. KES 8.1 Billion was allocated to National Youth Service (NYS) to recruit and train 21, 870 youths.

 In modern day, prices tend to increase with rise in economic growth rate. As a result, government expenditure on public goods and services rise. The cost of living consequently increases government expenditure through higher salaries. In 2014, the world economy is expected to grow by 3.6% compared to 3% in 2013. The economic growth rate was 4.7% in 2013 despite it being an election year. The peaceful transition yielded investor confidence.

 Governments are usually engaged in economic development programs. They spend huge sums of money on infrastructural facilities as well as research and development. Towards this end, the construction of the Standard Gauge Railway (SGR) from Mombasa-Nairobi has already begun. It is expected to be complete by 2017. KES 22.9 Billion was allocated towards this project. KES 1.65 Billion were allocated towards the expansion of Isiolo and Kisumu Airports and construction of three new airports in Suneka, Malindi, and Mandera.

 States borrow both externally and internally to meet their ever-increasing public spending. This raises public expenditure due to loans repayment. However, fiscal discipline has culminated to improved domestic and external debt position.

Lastly, Kenya is a democratic country. Democracy is very expansive as it roots for majority having their way and the minority having its say. Again, World Bank reports indicate that widespread corruption in democracies raise public expenditure manifold. However, the government is planning to roll out an e-Procurement system. In an attempt to address corruption, the government plans to implement the Digital Government Payment Gateway that will link Government service delivery and payments.


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