IMF’s hidden hand in proposals to halt hiring and cut spending

The Finance Ministry’s CS said the reform proposals in its Sh3.92 trillion budget were aimed at curbing the spiralling public sector wage bill, which would reach Sh1.1 trillion in June 2023, and “eliminate bogus workers as well as enforce payment of salary scales” as approved or recommended by the Salaries and Remuneration Commission.

The IMF, which has lent Kenya billions of dollars in recent years to support its budget and currency, has tied this aid to a series of demands for economic and government reforms.

“Public sector wage bills continue to rise, leaving few resources for development. Public sector wage bills as a percentage of total revenues stood at 38.2 percent in 2021,” said Prof. Ndung’u.

“To contain wage costs, the government has imposed a wage freeze in the 2021/22 and 2022/23 financial years and has also eliminated and rationalized a number of allowances.”

In order to implement the wage and salary reform, a uniform personnel information system for the entire public service is to be introduced from July.

The new system will be linked to the Kenya Revenue Authority’s i-Tax system and will consolidate human resources and payroll data and provide access through a single repository.

“This reform will eliminate the multiple, manual and standalone payroll systems,” said Professor Ndung’u.

In addition, the Ministry of Finance is requiring ministries, departments and agencies to suspend the hiring of new employees for the next year.

Since December 2013, the government has imposed a moratorium on new recruitment in the public sector. This limits recruitment in essential sectors such as security, education and health in order to get public sector wage costs under control.

Prof. Ndung’u also announced that all renovations and partitions of government buildings and the purchase of furniture would be suspended for one year and all funds for the purchase of motor vehicles would be cut.

In addition, there will be cuts in foreign travel and the reduction of training costs, which will be limited to government institutions. The procurement of everyday items will be consolidated in order to achieve volume discounts.

Other measures include a 30 percent cut in funding to semi-autonomous government agencies and requiring these agencies to transfer surplus funds to the Ministry of Finance.

The Ministry of Finance also plans to review insurance schemes in the public sector, such as the Edu-Afya scheme for schools and health insurance for the civil service, police, prisons, commissions and independent offices, which will be placed under the Social Health Insurance Fund.

The reforms indicate that President William Ruto is committed to implementing the strict covenants attached to loans from the Bretton Woods institutions.

“Improving tax compliance and increasing spending efficiency through public expenditure and wage bill reforms, restructuring state-owned enterprises, rationalising unproductive current expenditure and better targeting subsidies and transfers while safeguarding social and development spending will be key to strengthening the credibility of the consolidation strategy in 2024/25 and over the medium term,” the IMF wrote in a statement after completing the seventh review of Kenya’s medium-term financing program.

At a Cabinet meeting on Thursday, the reforms highlighted by Professor Ndung’u in his budget statement were outlined.

A State House dispatch states, in part: “In line with the government’s fiscal consolidation strategy aimed at reducing public debt and with the objective of achieving a balanced budget by 2027, the draft budget consolidates these efforts by reducing the fiscal deficit by almost 50 percent.”

The Ministry of Finance expects to reduce the budget deficit next year by 35.46 percent from an estimated 925 billion shillings in the current year to 597 billion shillings.

However, the slowdown in fiscal growth will be achieved on the condition that ministries, departments and agencies keep their expenditure within their budgets and the Kenya Revenue Authority achieves its set fiscal targets.

“The targeted reduction in current expenditure is commendable. However, it must be noted that similar efforts in budget estimates in the past have not achieved the intended objective,” the National Assembly’s Budget and Appropriations Committee wrote in its report.

“In fact, there is a tendency to revise current expenditure upwards through supplementary budgets. In order to implement the strategy of budget consolidation, supplementary budgets must therefore be limited to changes based on actual trends in revenue developments.”

The IMF-supported reforms are intended to ensure that the country can live within its means within three years.

The expenditure estimates of Sh3.92 trillion for the coming fiscal year beginning July 1 represent a marginal increase of 1.82 percent over the Sh3.84 trillion budget for the current year ending this month.

The increase in the state budget is the lowest in recent years and represents a break with the past decade, during which spending largely grew faster than tax revenues.

Total public spending has increased by an average of eight percent over the last five years.

Professor Ndung’u said the implementation of these bold measures would put the country on the path to a “balanced budget”.

A balanced budget means keeping borrowing to an absolute minimum, something the country has failed to do in the past, including during President Ruto’s first full fiscal year, which ends this month.