Kenya: How a Shadow Budget Sheds Light on Spending

At the heart of policy for equity lies public finance, and this conviction inspires the work of the Institute of Public Finance Kenya, an independent think-tank that advocates for just, responsible and responsive government budgets. James Muraguri, CEO and founder of IPF Kenya, believes that in the wake of the economic, health and social impact of the pandemic, lawmakers’ constitutional obligation to consult civil society on public finance is more important than ever. Here, he outlines why IPF Kenya and its partners have launched their first-ever Shadow Budget for the country.

What is a Shadow Budget?

Although shadow budgets are common in many countries ranging from the United Kingdom to Pakistan, ours is a first not only for Kenya, but for East Africa as a whole. We launched our FY 2021/22 Shadow Budget on 29 April ahead of the annual reading of the government’s national budget, on 10 June.

Our Shadow Budget is an influence mechanism designed as an advocacy piece. With it, we seek to influence Kenyan government budgeting while enriching citizens’ and state engagement in the budget process.

In building and sharing this report, we are motivated by the hope that this is an opportunity to influence the quality of public conversation with regards to public budgeting.

Why did you opt for this particular method of advocacy intervention, and who provided input?

IPF-Kenya’s mission is to provide expert analysis and views on government budgets and fiscal policies. The Shadow Budget, which we launched in collaboration with Oxygene Marketing and Communications Ltd and the Kenya Private Sector Alliance (KEPSA), will now become the second of our two flagship annual reports, and it draws on both internal and external budget expert analysis.

To develop the Shadow Budget, we collected as much information as possible from publicly available government budget documents, and scrutinised them to make viable recommendations. Over the years, public participation in Kenyan public finance has shrunk significantly, with lawmakers taking a very tokenistic approach to consultation. This year especially, in the wake of the pandemic, we wanted to make sure that we are able to provide an alternative voice on behalf of citizens.

Is this year’s Budget a significant one for Kenya?

The COVID-19 pandemic and increasing debt levels have made public participation – which is a constitutional right – more and more difficult, and government agencies have taken advantage of this twin crisis. Health protocols have meant that no physical meetings are allowed, and therefore public participation is dependent on internet access, which has placed significant limitations on who is able to engage with these important processes.

The FY 2021/22 budget has been developed in a highly significant period, when Kenya is coming out of a lockdown due to the third wave of the pandemic. It is worth noting that in this period there has been a lack of mass testing and limited vaccination, which in the first round covered only approximately 2.5% of the population.

Kenya’s national debt is rising. Can the government continue to provide critical services such as health care, education, electricity, agriculture, and cash transfers to people with disabilities and the elderly?

The need for government services has increased the demand on resources – in an environment where those resources are shrinking. This has seen Kenya’s government default on the provision of basic services: hospitals are going for months without critical supplies including oxygen, and the frontline workers in critical service provision are not being paid on time.

This situation has been exacerbated by Kenya’s rising debt, which from July 2020 to March 2021 consumed 70% of our taxes in repayment. Within that period, the Kenyan government collected approximately Ksh1.0 trillion (USD10 billion) and spent Ksh 700 billion (USD7 billion) on paying debts.

As experts, we know these debt figures are very worrying, because a government that cannot meet its part of the social contract is practically a failed government. For a burgeonig youth population that sees its opportunities for earning a livelihood shrinking every day, there is the risk of hopelessness setting in, and that is a recipe for dangerous anarchy.

What are your biggest concerns about current Kenyan government expenditure, tax policies and debt?

With a looming constitutional referendum and a general election all coming within a period of 16 months, Kenyans are worried about short-term political decisions that will have reverberating effect in the lives of Kenyans long after this government administration.

As a practitioner, I continue to be concerned by the expansionary fiscal indiscipline being pursued by the government, which will leave Kenya in a debt hole that will take us years to come out of. We have been witnessing large infrastructure projects going on across the country, and most are driven by debt. It is important to understand that a significant number of these projects are overbudgeted in order to support the corruption food chain. Furthermore, the tax regime continues to be very unpredictable, and this does not make for a favourable business environment.

What is the “predictable tax regime” you call for in the Shadow Budget — and should Kenyan citizens and companies be paying more tax?

A predictable tax regime includes a system where consultations on tax introduction are consultatively broad-based, aligned to the national development blueprint, and devoid of surprises. This would ensure that the tax system becomes an enabler instead of a stumbling block to the growth of both businesses and the Kenyan economy as a whole.

At this point, our Institute does not recommend the introduction of more taxes, but rather the widening of tax bracket. Kenya’s revenue authority should be more innovative, and move out of urban centres and posh offices, to go and deal with those who are not tax compliant.

What are the three biggest demands you make in the Shadow Budget?

In the FY 21/22 Shadow Budget, our institute has called on the government, and especially Parliament, to be wary of what is being proposed in an election year.

The key initiatives we have urged the government to take are:

• freeze all new infrastructure projects for a period of one year and reconsider completing the ongoing works

• develop a national tax policy to ensure that tax environment is predictable and operationalise the debt policy

• establish an independent public debt authority.

Do you think IPF-Kenya’s Shadow Budget will achieve its aims?

We have embarked on an exciting journey in developing the Shadow Budget, and the feedback for the FY 21/22 report so far shows us that there is a widespread desire to consider alternative approaches to how the government undertakes budgeting.

Kenya’s constitution requires that in all planning, the government must involve the public. We hope that the Shadow Budget will become one of the key drivers in increasing the quality of public conversations with regards on how national budgeting is undertaken. While the government does not expressly give feedback on how submissions by civil society have been received, it is at least required to provide evidence that public engagement was received.

I believe that this Shadow Budget presents an opportunity for Kenyans see that we can build back better together, and to acknowledge that this country belongs to all of us.

Download the inaugural FY 2021/22 Shadow Budget for Kenya.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Atlantic Fellows for Social and Economic Equity programme, the International Inequalities Institute, or the London School of Economics and Political Science.