Ruto breaks down his economic agenda
Written by Inka FM on 30 September 2022
President William Ruto yesterday spelt out urgent details in his administration’s economic agenda urging the August House for support.
Focusing on how to grow the economy and people’s wealth, he said the country’s awkward debt situation which has hit Sh8.6 trillion can be alleviated by scaling up agricultural productivity and leveraging technology to access private sector innovations.
According to President Ruto, for Kenya to grow to an upper middle income, the country needs to invest at least 25 per cent of its Gross Domestic Product (GDP).
“I have news, and it is not very good news. Our financial situation is not very good…Our current national savings rate is below10 per cent of our GDP, which translates to an investment-savings deficit of 15 per cent of GDP,” he said.
President Ruto further said, “Over the last decade, we have sought to close this gap with public borrowing. This year alone, we budgeted to borrow Sh900 billion to finance both development and recurrent expenditure. The government should never borrow to finance recurrent expenditures. This is not right, prudent or sustainable, it is simply wrong. We must bring ourselves back to sanity.”
This situation, he said, is unacceptable and must be reversed in the next three years when the government starts contributing to the national savings effort by keeping recurrent expenditure below revenue.
To ensure this happens, he instructed the National Treasury to work with government ministries to find savings of Sh300 billion in this year’s budget. “Next year, we will bring it- recurrent expenditure-further down so that by the third year, we have a recurrent budget surplus,” he said.
Over the last decade, he said, the government had budgeted to borrow Sh900 billion to finance both development and recurrent expenditure, which he said was unsustainable.
“The Government should never borrow to finance recurrent expenditure. This is not right, prudent or sustainable, it is simply wrong. We must bring ourselves back to sanity,” President Ruto said.
Banking on digital technologies which have become a critical player in economic growth, President Ruto said his administration will capitalise on innovation in the public and private sector to distribute the Hustler Fund, even as he called upon young people and financial institutions to be fully involved.
“I call upon financial institutions and our young people in innovation hubs to participate in the digital economy by redesigning their products to serve the goal of empowering millions armed with grand ideas and are only waiting for the fund to finance their dreams to reality,” Ruto said.
To implement pledges and commitments set out in the Kenya Kwanza plan, Ruto said his administration is committed to investing in the requisite enablers and infrastructure to provide a sound foundation for its execution, and interventions that would create a conducive environment for the effective, efficient and sustainable realisation of the national transformation agenda. This, he said, can only be achieved through prudent management of public resources.
“We are on a mission to dramatically scale up productivity in agriculture and make sure that every Kenyan farmer, fisherman and pastoralist contributes to sustainable economic growth by contributing to adequate and affordable food generating, greater income and producing the raw materials required by the agro-industry and manufacturing value chains,” he said adding that the measures would boost Kenya’s export performance and create millions of jobs.
He said his administration will abandon consumption subsidies in favour of supporting production, a major reason the government had made available fertiliser to farmers at cheaper rates of Sh3,500 per 50 kg bag down from Sh6,500, indicating that they were exploring further mechanisms to bring the prices down.
In order for the hustler economy to flourish and form the foundation of broader economic transformation while catalyzing the widening of the national revenue base, the President said his administration will create an enabling environment for business people to thrive and decriminalise enterprise.
According to the head of state, affordable credit makes a huge difference in the rate of business growth. To this end, he faulted the current Credit Reference Bureau (CRB) approach of blacklisting borrowers, saying it was “zero-some and punitive, and has arbitrarily locked out millions of businesses out of the credit system.” To correct the anomaly President Ruto said it was time to shift the formula to a credit scoring system, which allows lenders to apply customer segmentation and end the stigma of blacklisting.
He said his administration will allocate resources every year to the hustler fund for Micro, Small and Medium Enterprises (MSME) to access affordable credit to start and expand their businesses by leveraging technology in the management and disbursement of the fund.
“Shortly, we will be bringing to this house the legislation and regulatory framework to operationalise this fund,” he said, adding that his administration will allocate Sh50 billion every year to the Hustlers Fund from which the MSMEs will access affordable credit to start and expand their businesses.
On revenue, the President said he was committed and determined to ensure that the country’s tax system is responsive to the needs of the economy. He said the system must be equitable, efficient and customer-friendly, suggesting a change of name from the Kenya Revenue Authority to Kenya Revenue service to reflect the new dispensation.
“The economic principles of equitable taxation require that the tax burden reflects the ability to pay. This is best achieved by a hierarchy that taxes wealth, consumption, income and trade in that order of preference. Our tax regime currently falls far short of this. We are over-taxing trade and under-taxing wealth. We will be proposing tax measures that begin to move us in the right direction,” he said.
According to President Ruto, large government borrowing requirements have undermined the business sector’s contribution to the national savings and investment effort, resulting in the government crowding out the private sector from the credit market.
“These measures outlined above will also address the problem of the government crowding out the private sector from the credit market. It will encourage banks to go back to lending businesses and also bring down interest rates so that the private sector can also contribute to reducing the savings-investment deficit.