Kenya's GDP growth, budget and policy nightmares

All eyes are on the national budget, an estimate of our national expenditure and revenues. Every State department and ministry is fighting to get a higher allocation.

Add the counties. The debate on who generated that revenue is muted. Any businessman or entrepreneur would wish we were allocating profits or surplus, not revenues.  

It can be persuasively argued that the revenues shared through the budget are profits or surplus from investors, entrepreneurs, donors or even debtors.

After all, taxes are levied on profits, except when turnover taxes or advance taxes are levied. It’s curious that while we are obsessed with the budget, the gross domestic product (GDP) - the total value of all services and goods produced in the country dropped to 4.7 per cent in 2024 from 5.6 the previous year, according to the World Bank.

That should be the headline. That should be a national debate on the streets, the State House and the August House. Why did the economic growth decline, and how can we stop it?

Unlike in the past when we blamed the external factors, the decline this time is attributed to internal factors too, such as Gen Z riots.

The World Bank explains this decline as resulting from “severe liquidity crunch and inflationary pressures in 2024, climate change shocks, subdued business sentiment following the mid-2024 protests, and reduced public spending amid ongoing fiscal consolidation efforts.” 

Remember the once depreciating shilling? This led to inflation and subsequent subdued demand slowed growth.   The maturing debts had to be repaid, shifting money from public services and development projects such as roads. Such projects create jobs and increase the productive capacity of the economy.

The climate shocks are best exemplified by floods, which affected the food supply and further added to inflationary pressures. Let’s talk the layman’s language. Subdued business sentiments mean we are less likely to spend or invest.

We all can remember the fear over the Gen Z riots. The fear that could happen again is factored in our long-erm plans. We could postpone spending, change our investment portfolios or shift money to where we think it’s safe or even buy gold. Sadly, most of us just watched; our economic degrees of freedom are limited.

 What of fiscal consolidation?  It’s about cutting the budget deficit and debt. How? You increase the revenues or reduce the public spending. This is the ultimate policy nightmare. One of the easiest ways to increase revenue is to collect more taxes. The Kenya Kwanza government was determined to do that until Gen Z rioted. The current Finance Bill is sensitive to higher or new taxes.

The focus is likely to shift to levies and payment for government services, more politically palatable. Public-private partnerships (PPPs) are seen as a route to reducing public expenditure on projects despite all the negativity around them. Higher and more taxes could reduce the budget deficit and debts. But that would subdue growth and business sentiments.

Spreading tax increases over time or bringing in new taxpayers could help reduce negative sentiments.

Some think appealing to patriotism, prudent spending of tax revenues and reducing corruption would make taxes more receptive to citizens. The policy nightmares are accentuated by debt repayment. You collect taxes to pay past debts which makes citizens fail to see the impact of their taxes.  How about reducing government spending?

That is yet another policy nightmare. That would mean sending workers home because salaries and wages are one of the biggest expenditures.

The political backlash keeps lots of workers on the payroll, including “ghosts.” Yet with more automation, use of ICT, the governments need less workers. We are waiting to see how artificial intelligence (AI) will impact the government workforce. 

How can we turn the economy around and catalyse GDP growth? How can we get more taxes, less debt and happier citizens? How about reducing interest rates to make credit cheaper? Inflation is no longer a threat. 

Economic players

More importantly, economic growth is about you and me, not the government. If we “feel good,” we shall work harder, produce more (including children?), invest more and consume more.

GDP is about the consolidated activities of all citizens and other economic players within the country. Just like millions of ants building an anthill.

How do we ensure everyone does their part? We can use incentives like rewarding those who go beyond the call of duty, or use force.

The latter stinks of communism or dictatorship. Growing the economy is not that hard. How about an economic stimulus package; we had one during Covid-19 and it worked.

From the State House to the August House, and counties, we must look at the rules, regulations, laws, salary structures, reward systems and how they incentive us. We can then work backwards to skills that would make the economy more productive.

Link the workplace to education. We must streamline Competence-Based Education (CBE) or Competence-Based Curriculum (CBC) soonest.

We tried all these approaches in Vision 2030, with only five years to maturity. How about integrating Vision 2030 to Africa’s Agenda 2063 and cascading that to counties and their integrated development plans? Should the national debt be about the budget or GDP growth?