By James Muraguri
The writer is CEO of the Institute of Public Finance, Kenya, & an Atlantic Fellow for Social and Economic Equity.
NAIROBI (IDN) – On March 12, 2020, the first case of novel coronavirus (COVID-19) was confirmed in Kenya. Over the next eleven days, 16 more cases were confirmed. Based on precedents elsewhere, we know this pandemic could set in motion an economic crisis that will burden Kenya for a long time to come.
According to Oxfam International, less than 0.1% of Kenyans (8,300 people) collectively own more wealth than the bottom 99.9% of the country’s 44 million people. Inequality this pronounced means that the most vulnerable Kenyans urgently need deliberate and affirmative action by our Government when it prepares its economic response plan to COVID-19.
Our organisation, the Institute of Public Finance Kenya, is now urgently calling for measures that will ensure that our public finance system is responsive and all-inclusive.
Chief among these measures is the re-prioritising of national and county government spending via new supplementary budget estimates for the 2019/20 financial year.
It is essential that the supplementary budget focus on spending cuts from non-core areas such as foreign travel by government officers, training, hospitality and development programs that were due to run between February and June 2020, and which have now been postponed.
According to the Controller of Budget, the national government spent approximately Ksh21.5 billion on training, hospitality and foreign travel in FY 2018/19, which is just Ksh7 billion shy of the FY 2020/21 allocation for the national social safety net, and three times the proposed allocation for the Ministry of Health’s Preventive, Promotive and Reproductive, Maternal, Newborn, Child and Adolescent Health (RMNCAH) programme.
Reallocation of the training, hospitality and foreign travel funds would mean that the social safety net could potentially reach twice as many beneficiaries, and additional funding for the RMNCAH program could boost urgently needed family planning resources and ensure that critical vaccines and medical supplies are available
Further, as the National Treasury prepares its revised estimates, Kenya’s Government should consider establishing a fund for businesses to draw working capital from, and avoid spending cuts on severely adversely affected sectors such as tourism. It should consider issuing a specific bond to establish this critical fund, thereby providing a lifeline to severely affected sectors and allowing them to retain the majority of their workforce.
Secondly, we are calling for the National Treasury and county treasuries to prioritise resourcing for frontline health personnel such as Community Health Workers (CHW), from their contingency fund and emergency funds respectively.
High-quality health services require labour intensity, and we have a moral duty in these times of COVID-19 to resource them adequately in order to reduce human suffering, especially among the most vulnerable Kenyans.
Using the contingency and emergency funds to provide resources to the Ministry of Health and counties will ensure that there are enough frontline health workers deployed across Kenya to address the urgent demand.
Thirdly, we must revisit Value Added Taxes (VAT) in this time of pandemic. Kenya’s income tax laws require that VAT be paid based on invoices issued by businesses.
In light of the exemption powers granted by law to the Cabinet Secretary National Treasury, we urgently ask that his office initiates a process to defer VAT for March, April and May 2020, in order to ensure that more business remain open beyond the pandemic and that more people remain in gainful employment.
Fourth, we call for counties’ emergency funds to be responsibly utilised. Pursuant to section 110 to 114 of the Public Finance Management Act 2012, counties must establish county emergency funds, which contain resources carried forward from previous years as well as allocation from their current year’s budget.
It is imperative that these funds be utilised as stipulated in counties’ FY 2019/20 Appropriation Acts, aimed at meeting the needs of the most vulnerable segments of our population.
Fifth, Kenya’s Parliament must keep the executive accountable for decisions it makes during this pandemic. We urge Parliament, through established systems such as parliamentary committees, to ensure the accountability of public resources by requiring transparency through the publication and publicising of emergency response disbursements on a monthly basis.
Further, Parliament must give legislative guidance on the constitutional requirements for the participation of citizens on the FY 2020/21 budget process at the national and county level.
This is particularly important because the new financial year, which begins on 1 July, is just a few months away, and the Constitution of Kenya is very clear on the obligation to include citizen participation in the process.
Seventh, we must focus closely on the tools available to the Central Bank of Kenya to support the economy and ensure that liquidity remains positive. These tools include the Cash Reserve Ratio (CRR) and the Central Bank Rate (CBR).
The CRR is the requirement for banks to hold deposits with central bank or internal reserves, and the CBR is the interest rate that the Central Bank uses to lend money to commercial banks for short term loans.
Adjusting both the CRR and CBR downwards allows the Central Bank to provide banks with more funding at their disposal and increase liquidity. In a commendable move, the Government acted on 23 March to revise the CRR downward to 4.25% from 5.25% of the total of a bank’s domestic and foreign currency deposit liabilities, and the CBR was revised down to 7.25% from 8.25%.
Eighth, in the very difficult economic times ahead, the Kenya Revenue Authority must ensure that interest and penalties do not accrue on unpaid business taxes such as Presumptive and Turnover Tax, and must allow for deferment of instalment taxes.
Most small businesses in Kenya do not have adequate business continuity plans, and the requirement for management and staff to work remotely will have come as a great shock and a significant logistical challenge.
As a result, many such businesses will not meet their tax payment deadlines. They should not be penalised because of the unprecedented scale of disruption brought about by COVID-19.
Ninth, Kenya has a recently established Public Debt Management Officewhich will now be in the eye of the storm in our public finance system as the country tries to manage its financial obligations.
To increase transparency and increase public trust in the accuracy of the debt register, which itemises all Government debt, the Public Debt Management Office should commit to providing monthly policy updates on the public debt and the mitigation measures put in place to avoid defaults by the country on payments to creditors, and it should provide Parliament with an adjusted borrowing programme.
Tenth, in order to ensure the accountability of public funds deployed during this pandemic, we call upon the Office of the Auditor General to be ready to audit Kenya’s COVID-19 emergency response.
The public must be reassured that emergency funds have been spent wisely, and ways of improving our financial management system for future deployment in pandemic times must be identified.
According to Transparency International’s latest global Corruption Perceptions Index (CPI), an annual measure of perceived levels of corruption in the public sector, Kenya has an unimpressive 28 score. It is essential that the Office of the Auditor General assures Kenyans that funds appropriated for COVID-19 response are used in the right way.
Finally, because the role of safeguarding Kenya’s public resources rests in Parliament under the constitutionally provided mandate of oversight, we urge the Parliamentary (Senate and National Assembly) Accounts Committee to be prepared to act on the Office of the Auditor General’s recommendations on resource deployment in response to COVID-19 at both national and county level.
The unprecedented threat posed by the pandemic to Kenya’s economy and citizens demands that all segments of Kenyan society work together.
In preparing economic stimulus packages for the country, the National Treasury must be willing to reach out to key players such as the Kenya National Chamber of Commerce and its chapters across the country, the Kenya Association of Manufacturers, the Federation of Kenya Employers, the National Federation of Jua Kali Associations, organised interest groups and civil society organisations, and the Kenya Private Sector Alliance, among others.
This will ensure that critical voices are heard and that valuable recommendations are listened to, and that in these very difficult times, public finance work will work for all Kenyans.
This is a time to heed urgent warnings, in Kenya and around the world. If we fail to ensure that the nation’s public finance system works as it should, countless businesses and citizens will be at risk, and left poorer and more vulnerable than they were before the COVID-19 pandemic.
It will be too late, in the months and years to come, for us to regret our failure to take swift and effective action in the nation’s interest. [IDN-InDepthNews – 26 March 2020]
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