Sunday, March 16, 2014

Balance Austerity with Public Sector Reform

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In his first address to the 11th Parliament in April 2013, President Kenyatta said that at Sh. 458 billion, the wage bill was gobbling over half of public revenue. Mr. Kenyatta noted that recurrent expenditure was squeezing out resources meant for development.
Today the wage bill is a veritable monster. Speaking at the cabinet retreat near Mt. Kenya Mr. Kenyatta said "We need to deal with this monster if we are to develop this nation otherwise sooner or later we will become a nation that only collects taxes to pay ourselves”. In this financial year, salaries and allowances paid to public servants will gulp down 55 percent of tax revenue, equivalent to 13 percent of GDP.
Mr. Kenyatta is done talking and is acting. Effectively immediately, the president and his deputy will take a 20 percent pay cut. The cabinet and their principal secretaries will take home just 90 percent of their current earnings. And last week, a visibly angry president ordered parastatal chiefs to take a 20 percent cut.
Is the dawn of government austerity is here? Cutting salaries is important but insufficient. We have a larger growth, revenue and spending problem, which has been in the making for years. We must to re-think the form and function of government for the 21st century.
The economy is staggering under the weight of outsized and profligate governments, surging insecurity, runaway poaching, decline in tourism and a widening current account deficit. 2013/14 revenue collections are below target. Moreover, the stratospheric cost of living in Nairobi, eternal traffic congestion, deplorable ranking on ease of doing business and poor infrastructure continue to starve the country of foreign directive investment flows.
A quick calculation reveals that the pay cut directive amounts to an annual saving of about Sh37.4 million from the presidency, cabinet secretaries and principle secretaries. With a pay cut of 20 percent, the 292 parastatal could save taxpayers circa Sh245 million annually. This is very modest but not trivial.
But here is the revenue hemorrhage Mr. Kenyatta must contain.
By Mr. Kenyatta’s own admission we pay Sh1.8 billion annually in salaries to dead, retired and dismissed civil servants. This says everything about how the civil service operates. I am amused that the devolution and planning ministry we will be spending about Sh2 billion on a civil service rationalization program. I wonder why we cannot stop paying these ghosts and use the savings to finance the rationalization program.
Devolution jerked up public sector wage bill by Sh15.4 billion as at December 2013. County governments spend on average 55 percent of their budgets on salaries and allowances. Analysis of the operations and maintenance expenditure revealed that county governments spent Sh1.07 billion on domestic and international travel. They spent Sh241.9 million on conferences and entertainment, Sh161.2 million on training and Sh708.5 million on purchase of vehicles.
Corruption and waste is monumental. The audit report for the 2011/2012 fiscal year revealed that 33 percent of the actual expenditure or Sh303 billion could not be accounted for. This is 2.5 times the Sh122 billion of additional expenditure the Treasury is seeking to keep the government running until June 30 2014. I think that unaccounted for expenditure for 2013/2014 will also be in the hundreds of billions.
Mr. Kenyatta has displayed credible outrage on government profligacy. He must follow through with structural and functional reform of government. An outsized government constrains public investment and crowds out private sector growth. Government must lean and fit for purpose. Trim down the coterie of political appointees, so-called advisors and directors. Government is not a vocational harborage for kith and kin.
Non-core services such as transport must be outsourced. Government has no business employing drivers and owning vehicles. Travel, entertainment and sitting allowances for public officials must be abolished. Travel and hospitality expenses should be reimbursed based on actual verifiable and pre-authorized expenses.
Lets face it! Devolution is an unwieldy burden on the taxpayer. At colossal costs to the taxpayer, devolution has delivered too much government, excessive political representation and little service.
More importantly, can Kenyatta make history as the first president to take on the corruption cartels in government and private sector? Can he be the first president to run a lean and efficient government? Can he stand up and say, we must fix devolution? Will his presidency be transactional, business as usual, or transformational? This is your moment, Mr. President.

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