Kenya's Stimulus Budget !

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Devolution’s thumbs up in Uhuru’s bold Budget

Updated 18 hr(s) 42 min(s) ago


By Kenneth Kwama

Finance Minister Uhuru Kenyatta on Thursday put behind him the ghosts of his famous "typing error" remark, to deliver a stimulus Budget in a time of austerity.

And for the first time in Kenya’s history, the development expenditure will be directed to constituencies, and monitored closely by Treasury. It displays a quiet consensus within the fractured coalition Government to devolve development funding to the constituencies, to create more jobs and improve critical infrastructure to promote growth.

The ‘good news Budget’ Uhuru unveiled is replete with record allocation of resources at the constituency level, and would largely pass for a ‘majimbo Budget’.

It seeks to uplift the common man, by allocating more funds to finance basic requirements like education, heath and infrastructure — a definite step in the right direction, to pare back some of the unnecessary expenditure that has pushed Budget deficits to over Sh194 billion.

Uhuru allocated a massive Sh60 billion for what he referred to as ‘constituency conditional stimulus plan.’

The package will pay for construction of roads, building fresh produce markets and fishponds and also enable a number of Kenyans living in far-flung areas access quality education and health care.

Teachers Contracts

Up to Sh1.3 billion will be set aside for recruitment of 10,500 teachers, with each constituency receiving Sh6 million to employ up to 50 primary school teachers on a contractual basis. Another Sh353 million or Sh2 million per constituency will be used to recruit 2,100 secondary school teachers on contract. This translates to 10 teachers per constituency.

Treasury also allocated Sh7 and 2.5 million, respectively, for each constituency for school upgrade and construction of Jua kali sheds.

And in a move to increase mobile phone usage, the minister scraped VAT on handsets, but failed to address the excise tax, which providers have been lamenting about. The tax accounts for about a tenth of the scratch card value and has been blamed for high communication costs.

There are two types of far-reaching taxes that Treasury levies on the telecommunication industry. The first is the Value Added Tax at 16 per cent; the second is the 10 per cent airtime tax. The monies allocated to constituencies are in addition to the Sh60 million allocated to every constituency through Constituency Development Fund (CDF) and will be channeled through current CDF framework, but managed through concerned ministries.

Uhuru’s stimulus Budget also reduced

a number of taxes and sought to punish extravagance in Government by confining ministers and senior civil servants to one vehicle each, not exceeding1800cc.

If effected, the move will snatch away the fuel guzzlers currently being used by senior Government officials and place them on the hands of private citizens who will be expected to purchase them after competitive bidding processes.

However, the waste and inefficiencies associated with expenditure on vehicles could continue to build up because the Government set aside Sh500 million in the Budget for ‘essential purchases’.

Despite the Finance minister’s assertion that the Budget was more about raising resources to revive the ailing economy, on a larger context, the Government also kept true to its tradition of spending beyond its means, allocating hundreds of millions for non-priority expenditure. For example, it set aside Sh83.4 million for the construction of conference, training and hostel facility for the new National Assembly Training Institute, Sh600 million for refurbishment and remodeling of Parliament and Sh100 million to purchase a house for the Speaker.

Trimming Fat

Uhuru’s stimulus Budget did not trim the excess fat in Government spending. It found room for Sh61 million to be used for construction of a footbridge linking County Hall, Continental House and the main Parliament buildings.

He told Parliament the Budget would spur economic growth, which is expected to climb to three per cent during this financial year.

With more resources required to cater for a number of emergencies like the expected food crisis, Treasury, which was expected to raise taxes, did the opposite by slashing a number of taxes.

"Import duty on second hand clothing will be reduced from the current rate of $0.3 per kilogramme or 45 per cent, whichever is higher to $0.2 per kilo or 35 per cent, whichever is higher," said Uhuru.

Value Added Tax (VAT) on industrial sugar — a key raw material in the manufacture of soft drinks and alcohol — was scrapped, meaning the benefits could be marginally passed on to alcohol consumers.

The price of soft drinks is also set to go down, following Uhuru’s move to scrap VAT on industrial sugar, and reduction of excise duty on carbonated soft drinks and juices to seven per cent.

Uhuru also announced various incentives to the film industry like zero rating of taxes on all taxable goods and services offered to film producers in a bid to attract more filmmakers into the county and facilitate growth in the industry.

Treasury will turn to the domestic market to raise Sh109 billion for expenditure, a move that is likely to push up interest rates on loans in the market.

"For the balance of the financing shortfall, we have adopted a programme of responsible borrowing."

He plans to hedge against pushing up the ratio of public debt to GDP (Gross Domestic Product), by seeking additional concessional assistance from development partners, to pay off part of the domestic borrowing. He said prudent borrowing is a must "to safeguard jobs" and economic recovery.

He said Kenya’s debt in relation to its GDP is currently below 40 per cent due to prudent debt management. It will hit 44.5 per cent of GDP by 2010, before declining thereafter. "We are in a position to confidently borrow in the short term to finance the proposed fiscal stimulus package, without compromising on macroeconomic objectives," said Uhuru, who took his first sip of water just 15 minutes into his speech.

"Let me remind honourable members that these are indeed difficult times, and difficult times require bold decisions. Indeed that is what Kenyans expect of us," he said.

The move could help spur the industry, considering that big players like East African Breweries (EABL) laid off some employees early this year owing to the tightening market situation. The brewer blamed the situation on declining sales volumes.

But unlike his predecessor, Amos Kimunya, whose proposal to tax MP’s salaries faltered, Uhuru steered clear from the legislators’ perks, meaning that the burden of uplifting the tightening economy will still stay with the common man.

Essential Programmes

He also sought to fund several new non-essential programmes.

The Constituency Development Fund (CDF) kitty was boosted to Sh12 billion with each of the 210 constituencies qualifying for a hefty Sh60 million to finance its various programmes.

The CDF has in addition received

Sh4.7 billion cut off the Roads Maintenance Levy, to be used for development and road maintenance in rural areas. This brings allocations to CDF from Sh10 billion in 2008/09, to Sh18 billion in the current fiscal year, an 86 per cent increase.

Another Sh22 billion, equivalent to Sh105 million per constituency would be provided as economic stimulus towards financing infrastructure development, education, health care and other development projects.

Each constituency will also get Sh10 million for construction of fresh produce market, bringing the total allocation to the 210 constituency to Sh1.8 billion Uhuru allocated an additional Sh1.1 billion, equivalent to Sh8 million per constituency for construction of 200 fish-farming ponds, covering 140 constituencies. They will create 120,000 jobs. And Sh525 million (Sh2.5 million per constituency) will go to putting up Jua Kali sheds, with Sh1 million per constituency for equipment. Uhuru will also allocate Sh1.5 billion or Sh7 million per constituency for upgrade of two primary schools and equipping them with water harvesting and ground water facilities Each constituency also gets Sh30 million to bring the total to Sh6 billion to put up a secondary school as a centre of excellence On ICT, Uhuru seeks to spend Sh1.3 billion or Sh6 million per constituency towards digital laboratory buses.

Uhuru also set aside Sh1.2 million on tree planting programme in 20 primary schools in each constituency