The remarkable 2008/9 Kenyan Budget Speech.

Some days prior to the reading of the budget, I spent time agonizing on what this country would do in averting a possible financial crisis. Already the post election violence had played its part in destroying the social fabric of the nation and now with the rising inflation and the low opening price of the Safaricom share, a financial crisis seemed to be brewing. I therefore wrote out two articles; one analyzing the possible financial crisis and the second one discussing possible ideas to solve the same. The next plan of action would have then to visit the key government departments and then advocate for a financial strategy that would reduce the impact of the rising inflation, the loans outstanding from the Safaricom initial public offering (I.P.O) and to spur growth, However, I realized that I been an ordinary Kenyan might not be able to influence much also considering that it was just a few days to the reading of the budget. I therefore decided to wait for the outcome of the budget speech.

Many people, actually, may not be aware of the magnitude of the financial crisis that the country would have faced if the pressure of inflation was allowed to have adverse impact on the Kenyan populace and if the banks charged an interest on the full amount borrowed for the Safaricom I.P.O. With very little business activity in the first quarter of the year and the rising food prices, Many Kenyans would have found themselves on the streets rioting and burning cars for the government’s failure to control the inflation and their increased financial burden for the loan repayment arising from the Safaricom I.P.O. I believe that Hon. Amos Kimunya and his team from Central bank, the treasury, the ministry of planning and other organizations were very much aware of this fact and were kind of intuitive in their structuring of the budget. At least every Kenyan can now see the difference it makes to have a former Institute of Certified Accountants of Kenya (ICPAK) chairman as the finance minister and I would recommend that the president would appoint creditable professionals to head ministries.

Hon. Amos Kimunya admitted that reading out this year’s budget speech was not easy. With a backdrop of rising inflation, a possible financial crisis, business inactivity due to the post election violence and other financial pressures, the usual tactics of raising money to fund the government’s activities were not an option. This is because if say Hon. Kimunya raised the tax of Value Added Tax (V.A.T) to 20% as many had expected, the cost of living would have gone much higher causing more strain to the general Kenyan public. Hon. Amos Kimunya also considered the fact that additional privatization or rather equity financing would possibly create a stock market investment bubble and choose to take advantages of the benefits of debt financing like any business owner would do through bonds to fund the budget development projects therefore bridging the budget deficit.

Reading through this year’s budget, one realizes the skill and tact applied by the Minister and his team in its preparation. Unlike what some people thought that they would shy away from increasing the size of the budget, the minister increased the budget from over 690 billion to 760 billion a full 70 billion expansion. It may be argued that the government had no choice but to increase the size of the budget due to the reconstruction issues arising from the post election violence and the size of the grand coalition government. However, that would have increased the government expenditure but about half of the increased budget expense and therefore not a valid explanation. The real reason why the budget has increased is because the government is focused on its development agenda and therefore committed to continue its trend of budgetary expansion which started back in 2003/4 budget speech.

Another element that displays the tact and skill displayed in preparation of this budget is the fact that this year’s budget focused on addressing the real problems affecting the economy rather than the symptoms. A good example was the reduction of taxes on wheat and maize products in a bid to stem the impact of inflation on food prices. This meant that the price of these basic food products will be controlled and also reduce the costs of importation of the same later in the year. That is real insightful thought also when you consider that the vote for infrastructural spending was increased to spur growth in the economy. Since infrastructure plays the primary role in increased business activity, another fundamental realization that this years budget displays, the government realized that by increasing its spending on the same, it will be able to collect more taxes through increased business activity.

The government also opted to rise its funding through debt instruments rather than equity financing which was also astute. This is because such a move will help in the growth of the capital markets since majority of Kenyans will now start trading in the bond market and asset backed securities. This means that the vibrancy of the Nairobi stock exchange will increase as Kenyans will now be attracted to participate in the bond market. Soon the Capital market authority will authorize two new investment options namely the asset backed securities and venture capital funds and increase the mobilization of private funds for public use. It is interesting to consider that eventually the government may not need to seek external funding (donor funds) to bridge its budget deficit now amounting to Ksh 127 billion since it will be able to raise such funds locally.

Finally, this year’s budget has also focused on making those who have caused the budget to increase to pay for its increase. I hope that the members of parliament will be courteous enough to accept Hon. Kimunya’s proposal to tax every M.P in order to raise additional funds for the government. This is because they are mostly to blame for the post election violence and the large size of the grand coalition government and therefore should help the ordinary Kenyan populace bare the burden. I also hope that the government will receive the support that it needs from parliament in order to implement its budget proposals and thus not face the same crisis it faced in the past when it attempted to seek approval from parliament for an additional 26 billion spend. Otherwise on the face value the budget its sound and very remarkable and only further study will reveal any deficiencies. However this will be a hard nut to crack for those pessimistic critics who always look for the bad in everything including the budget. This leaves us with room only to give suggestions to improve it in our critic.