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Govt must suspend projects, says economist

NAIROBI, November 17 – The government will have to defer some of its development projects that were to be implemented this financial year, an economist has said.

Dr Kibua Nzioka, an economist with AMREF, has told Capital Business that this is the only logical option that the government has as it cannot raise enough funds from the conventional means such as revenue collection, privatisation and capital inflows to finance the programs earmarked for the year.

“There’s a possibility that the Kenya Revenue Authority will not achieve its tax collection targets, which means that there will be less money available for expenditure on the development proposals. The government is unlikely to reduce the number of civil servants to reduce the amount of salaries paid and so the injury point will be development projects,” he explained.

Thus projects such as infrastructure development, building of schools and hospitals would have to be put on hold.

From a public finance management point of view, Dr Nzioka explained that shelving of some projects was viable but the same would not augur well with the public that expects the government to deliver its pledges.

He added that should the government decide to borrow from the domestic market, the implications would even be greater as this could push up interest rates and inflation.

“If you want to borrow more money, you must pay higher interest rates. Thus the (interest) rates will be transferred from the money markets into the goods markets, which means that inflation will start spiralling,” he said while explaining that this would cause the cost of living to go up and therefore would not be a viable choice for the government.

In the 2008/2009 budget, the then Finance Minister Amos Kimunya said his budget had a deficit of Sh127 billion but added that this gap would be filled by the issuance of a $500million (Sh39 billion) sovereign bond and external financing.

However, Dr Nzioka expressed doubts that the bond would be successful owing to the current global recession. He explained that the development partners would be more concerned with how to fix their economies which would translate into fewer or no loans and grants to the developing countries.

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On the domestic scene, Dr Nzioka said the bearish stock market was also likely to hamper government’s plans to raise Sh8 billion through the privatisation of several state corporations.

The Treasury has already announced plans to proceed with the second round of its divestiture program, where National Bank of Kenya and Kenya Wine Agencies are touted as some of the organisations that the government intends to reduce its shareholding.

Dr Nzioka however pointed an accusing finger at the Members of Parliament (MPs) for their refusal to pay taxes arguing that their defiance was likely to lead into an outbreak of civil strife.

It is estimated that if all the 222 legislators were taxed on their allowance, the government would raise Sh660 million every year.

“We have moved from executive authoritarianism to parliamentary authoritarianism. MPs are being insensitive towards the citizens’ needs and they are becoming obsessed with vested interests,” he complained adding that their insolence was hampering the development of the country.

Referring to them as ‘joy riders in financial positioning’, Dr Nzioka said the law makers were economic saboteurs who needed to change their ways for the interest of the country.

“We should amend the Economic Crimes Act to include a provision that criminalises non-remittance of levies,” he proposed adding that this would ensure equality.

The economist forecasted that the consequences of all these challenges would be a decline in economic growth which has been projected to grow at four percent this year.

He emphasised that for Kenya to avoid getting into an abyss which could lead into economic and political instability, the government needed to widen its tax base by bringing into the (tax) net MPs and small businesses.

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