By The International Center for Policy and Conflict (ICPC)
The International Center for Policy and Conflict (ICPC) is calling for the FY2020/2021 budget overhauled.
The National Treasury bizarrely prepared a budget that was completely unhinged and lives in a parallel universe not the reality of devastating COVID-19 extraordinary uncharted times.
While the economy has been fully opened up, it has not been done in a properly managed way. The country should have adopted a county situational analysis strategy with timed review mechanism rather than one size fits all.
The country is already seeing a wave of increasing infections. This makes it absolutely necessary to overhaul the FY2020/2021 budget to reflect and align with the reality of COVID-19 and enormous challenges as the country faces the worst social and economic crisis. This is not moment for huge capital expenditure megaprojects.
While the government’s immediate priority should have been to ‘buy’ a lower rate of unemployment as quickly as possible, the economic and non-economic co-benefits of stimulus programmes, both in the short term and long term, should also have been considered when deciding what stimulus projects to support.
With a pandemic like COVID-19, the risk with waiting to see how badly the economy slows is that, by the time the data is clear, the window to act effectively has passed.
The size of the budget fiscal stimulus-response needs to be proportionate to the damage that would otherwise be done and putting purchasing power with spending needs.
Treasury and State House did not plan, budget, and ensure the maximum use of available resources to protect the socio-economic rights of the Kenyan population being brutalized by the effects of the COVID-19 pandemic.
It is evident that Treasury disingenuously ignored the fiscal options for responding to the effects of the pandemic and health measures’ restrictions.
It was not just the size of the fiscal stimulus that would have determined the short and long run Covid-19 economic effects but also the shape of the deficit also matters greatly.
The FY 2020/2021 budget ought to have been informed by realities of the need to increase money allocated to COVID-19 response, collapse in economic activity and economy contraction, budget deficit and large decline in tax revenue collection and huge debt servicing.
It was erroneous for the National Treasury to treat the COVID-19 crisis normally as though to expect the economy that comes out of hibernation to look exactly like the one that was put to sleep.
If government is serious about addressing inequality and building a less unequal economy, it must use the budget to change the distribution of the incomes arising out of economic activity by increasing expenditure targeted at low income groups.
This can be done by either increasing total expenditure, or by re-prioritizing expenditure to low-income groups so that they benefit more than they currently do.
An urgent adjusted COVID-19 centered and effective budget to reprioritize expenditure is required to fully address the worsening COVID-19 health crisis and support livelihoods, advance rights, sustain businesses and protect the country from imminent economic and social collapse.
The economic crisis brought on by the coronavirus pandemic requires fast, large, effective and well-targeted fiscal stimulus. The government needed a budget approach that is temporary and targeted as well as structural and sustained. Specifically, the Covid-19 centered budget should address:
1. County based healthcare large additional resources to respond to the escalating pandemic. The counties need accelerated funding to increase testing and screening capacity in high-density areas, increase expenditure to expand laboratory capacity and reduce turnaround times for results, increase bed capacity, provide proper Personal Protective Equipment (PPE) and improve tracing and isolation facilities.
2. Revenue sharing should be revised to ensure adequate funding of County governments’ infrastructure to provide safe and consistent access to water and sanitization of public transport, protection of the hungry and support to those without rent and the provisions of masks. County Governments provide a wide range of community services. As they are both significant owners of physical capital and play a key role in planning and approvals they are uniquely placed to rapidly bring forward a large number of small capital works projects which would not just create demand for public and private sector work but also deliver lasting community amenity. A direct cash grant could be made to each county government in proportion to its population.
3. To avoid further retrenchments and income loss, the government should invest in urgent measures for supporting businesses including accelerated depreciation measures and providing cash flow assistance to help small and medium sized business to stay in business and keep their employees in jobs.
4. The Government should support businesses to set up the Temporary Employer/Employee Relief Scheme (TERS) to offer funds to businesses or direct to employees to pay wages. Make relief more accessible and automatic for certain businesses to extend relief to households.
5. Set up very low interests government guaranteed business rescue fund for businesses where loans are not appropriate to help them survive this period. In some instances it will likely be both necessary and efficient for the government to make large direct investments in firms in exchange for equity in those firms. The most efficient way for the government to make such equity injections would be to create a dedicated fund, which in addition to saving jobs and ensuring production, such stimulus would provide long run benefits to taxpayers in the form of future dividends from future profits
6. Targeted support for the most severely affected sectors and household stimulus payments that will benefit the wider economy. Increasing social grants is a vital means to ensure that poor and low-income Kenyans survive the economic hardships and keep families afloat through their spending.
7. Target activities with high direct employment intensities. Crucial Social or industries such as health and education have higher direct employment effects per spending. By contrast construction involves relatively small direct employment but significant off-site indirect employment. The priority early should be to the more employment intensive industries like refurbishing existing public sector infrastructure such as schools because they require labour intensity. The more labour intensive an industry is the more jobs will be created per billion spent
8. Additional funding to the education sector. Children’s well-being has been affected by COVID-19. The painful consequences of the government’s failure to provide schools with adequate infrastructure and basic services such as clean water and sanitization will see almost a third of children not returning to schools due to the effects of long schools’ closures. Urgent schools’ infrastructure spending will benefit an entire school community and should be undertaken concurrently with emergency water provision to provide a long-term solution to the school sanitation crisis while helping to support community development during the economic downturn.