The rise of an African Tiger: Budget Options for 2015/16
Can Kenya become an African Tiger? In the 1960s, Kenya’s economy status was at par with the economies of Hong Kong, South Korea, Taiwan and Singapore. However over time Kenya’s economy stagnated while the four economies transformed from underdeveloped to industrialized.
These four economies were able to achieve spectacularly high and sustained economic growth through rapid industrialization and specialization in areas of comparative advantage; thereby earning themselves the title of the ‘Asian Tigers.’ The high growth phenomenon in East Asia during this period has been termed as nothing short of miraculous and has generated significant interest in other countries seeking to replicate the Asian Miracle in their own economies
So can Kenya try to replicate this miracle for the Asian Tigers? To achieve this Kenya has to sustain higher gross domestic trajectories and develop policies that are inclusive of all citizens. For 2015/16, government expenditure should focus on programs that have a high impact of reducing poverty and inequality in the society rather than the usual ritual of increased spending on previous budget programs.
Setting the pace for sustainable growth: Budget Options for 2013/14 and the medium term
The year 2013 will be a defining moment for Kenya. First, the pace at which the country shall adhere to fiscal discipline amid high expenditure incurred following the just concluded general elections remains a crucial factor in determining the pace of future growth of the country. The growth trajectory will largely depend on how fast the country returns to normalcy as well as how quickly people and industries get back to full capacity. In addition, the huge recurrent related expenses will continue to be a major challenge as the implementation of devolved system of governance sets in.
Secondly, the promise of devolution will be ultimately actualized as County governments come into operation. This is likely to present a challenge in terms of increased government recurrent expenditure in an already tight fiscal environment. Significant recurrent expenses are expected in establishment of public finance management systems and capacity building for county governments as well as the expanded legislature. In addition, the growing wage bill may continue to be a major setback as the implementation of devolved system of governance gains momentum. Devolution will also bring with it a reorientation of government expenditure into national and county budgets with revenue from property taxes as well as entertainment taxes being raised by county governments besides receiving the equitable share of revenue from the national government. These are uncharted waters and are likely to present a challenge in terms of planning and budgeting. Thirdly, the role of the Transition Authority and other institutions in ensuring a smooth transition cannot be over-emphasized.
Although there has been enormous effort, there are key challenges including the huge wage bill and debts that County Governments will inherit from the defunct local authorities. In addition, the debt take-over by County Governments will lead to limited fiscal space for other priority development needs. Given these challenges, the government may also face increasing expenditure pressures particularly from salary demands from public servants who will be reacting to inflationary tendencies that normally occur immediately after elections. This scenario is worsened by persistent revenue shortfalls which have been witnessed over the past years.
The 2013/14 budget must therefore strike a delicate balance between prioritizing critical expenditure subject to resource constraints; promoting the functionality of the devolved system of government to spur economic growth and enhancing macroeconomic stability. These are hard times and they require hard choices. This Budget Options has three main messages. Tighten the fiscal belt further through expenditure rationalization and prioritization; enhance revenue collection; and drive growth through devolution.