What kind of shape will this economy be in in the next six months?
It took the public servants’ salaries crisis to get the President William Ruto administration’s men to acknowledge that we are in a public finance quagmire and the economy in dire straits.
The strategy characterised by responsibility aversion and scapegoating of the past administration, and of hiding economic failings behind international trends, had clearly run out of tarmac.
It was the National Treasury Principal Secretary Chris Kiptoo who first came out to speak with clarity on the cash crunch the administration was going through when he appeared before a committee of parliament.
Dr Kiptoo disclosed that public finances were in the deep red. In the month of March alone, the administration had spent a whopping Sh150 billion on repaying the public debt.
Secondly, the Treasury had delayed the release of Sh88 billion of the development budget of the national government due to a shortfall in revenues. And that, since July 1 last year, ministries and departments had not received a coin in their development budget, which is usually Sh200 billion monthly.
A week later, the Cabinet Secretary for Finance and Planning, Prof Njuguna Ndung’u, warned civil servants to brace themselves for more salary delays, declaring that the economy was going through tough times. He said the administration is in a ‘financial fix’ with nowhere to get more funds.
“The national government is caught between two extremes: High level of debt financing and financing constraints due to limited access to finance in both the domestic and international financial markets,” said Prof Ndung’u.
The chair of the presidential economic advisers, Dr David Ndii, has also come out to express similar sentiments. “The government had to choose between paying salaries and servicing debt. When maturities bunch up, or revenues fall short, or markets shift, something has to give. Salaries or default? Take your pick,” said Dr Ndii.
Clearly, the salaries crisis had spawned an outbreak of intellectual honesty about the gravity of the economic challenges the country faces. It was no longer the time for mouthing pipe dreams and repeating the usual grandiose plans.
And the hyperbolic talk about how the economy was on the mend—how the administration had managed to stabilise the economy in a matter of only six months—could no longer hold.
It all left me asking myself several questions, like what is the end game about this new outbreak of plain speaking and intellectual honesty among these key influencers and leading voices on economic matters in the Ruto’s administration?
Is it to prepare the public to accept appeals for belt-tightening and sacrifices, including delayed salaries, pensions and disbursements to county governments?
Or is the objective to project to the public the message that the administration is helpless in the current circumstances and should, therefore, be forgiven for not coming up with urgent solutions? Is the intention to breed fatalistic acceptance among members of the public?
Sovereign debt default
Even more pertinent, is Kenya likely to go into a sovereign debt default on its loans? Are the grim circumstances likely to tip the economy into a fiscal collapse? When Ghana went belly-up last December, the country had a virtually identical debt matrix to Kenya’s. Sooner or later, circumstances are going to force us to make desperate moves.
Recently, Dr Kiptoo narrated to the Public Debt and Privatization Committee of the National Assembly how the US EximBank had issued a notice on the default on the Treasury in respect of loan guarantees to Kenya Airways. We had to pay up.
We must remember that we came very close to behaving like Ghana. Recall that Kenya’s Treasury Bond Switch programme of last June and November was identical to Ghana’s domestic bond exchanges of December 3.
Then, Kenya convinced domestic bondholders to convert or switch Sh87.8 billion of two-year Treasury bonds and three-year Treasury bills maturing in January 2023 into six-year medium-term infrastructure bonds in lieu of cash on maturity as the Central Bank expected a cash crunch from early this year.
This was the first-ever direct conversion of maturing Treasury bills and bonds into longer-dated interest Treasury securities.
With debt service now gobbling up 65 per cent of revenues, and in the context of falling revenues and rising expenditure, we are approaching a debt snowball situation where you are forced to service debt through taking more debt.
In the name of stabilising the exchange rate, we have decided not to be buying oil on the spot market and will now be paying for our oil imports at intervals of six months.
The new system will, no doubt, temporarily ease pressure on the demand for dollars. Yet the truth of the matter is, we have merely kicked the can down the road by deferring dollar payments.
Where is the evidence that the government is in crisis mode?
