Tuesday, June 16, 2015

WE HAVE COME A LONG WAY

This year’s budget speech was particularly hard to cover.

Under the recently passed Public Finance Management Act the budget should be passed by the end of May, that means since March the details have been thrashed out in public with all the details open to the public.

However this was a logical conclusion to a process that started a few years ago when documents like budget framework were released into the public months before the budget reading in June. The budget framework paper has the broad outline of how government intends to spend the money it has raised through taxes and borrowing.

With government no longer in control of general prices the only surprises used to be the new tax measures.

But this year all these had already been discussed so there really no surprises in Matia Kasaija’s budget.

Up to last year finance ministry officials held on to the budget speech up to the last moment like their lives depended on it (their livelihoods probably did).

So in trying to generate stories we had to go back into the past for comparison purposes. Sadly we have not been good at archiving our records digitally so it was a struggle but there still remain hard copies of the background to the budget of 1986.

"In 1986 it is clear that there was no money. The economy was in the toilet a combination of the Idi Amin legacy and an ongoing civil war that was bleeding the state dry...

In the 1986/87 budget total government expenditure was sh11b or about $785m at the prevailing official US dollar exchange rate of sh14. At current prices the budget would have been about sh2.4trillion or a tenth of our present day budget.

Probably less because the official dollar rate was not an accurate representation of the true picture. Unfortunately I could not find any figures of the unofficial (kibanda) market rate.

Interestingly in that budget donor support for the budget came in at a mere eight percent. This figure would jump to as high as 64 percent in 1991/92 before tapering off to the current 24 percent.

The story is not new. So to raise revenue the government had to kick start the private sector into action so they could collect more taxes but in the meantime they needed to cozy up to the donor community to finance the transition to a private sector led economy.

At the tail end of the cold war you could fall in with the IMF and World Bank, whose recommendation it was to liberalise markets, privatise state companies and work towards macroeconomic stability or pump more money into the public sector (which money?), maintain central control of the economy and hope for the best.

We toyed with the latter but quickly realised that our best bet was to unlock the energies of the private sector to ensure long term sustainable growth.

The costs of course came in the form of the restructuring, shut down or sell off of the old parastatals the pain being felt most by the retrenched workers and their families.

"At the time Nile Breweries was repossessed by the Madhvani family, beer trickled out of their Njeru plant at the rate of 2,000 crates a month. Now the brewery churns out about two million crates a month. It’s not the ideal example but illustrates the efficiencies that have been unleashed with private ownership...

With our efforts to unlock the economy came donor funding that jump started the reconstruction and rehabilitation of key infrastructure needed by businessmen.

What would have happened if we had chosen to thumb our noses at the western donors and pandered to the old communist east. For starters in three years we would have been well and truly up the river without a paddle, because in 1989 the Berlin wall came down symbolising the end of the communist world of the cold war era.

We would have to have found ourselves back into the liberal economies’ fold eventually. But we would have wasted valuable time.

"But whereas we have done  a better than average job at rehabilitating our physical infrastructure there is an urgent need now to get our soft infrastructure – laws and  institutions, to work for the benefit of the private individual and private sector...

This is necessary because the gains of the last 30 years have been concentrated among a small elite. 

An improved institutional framework will ensure the love is spread out more evenly through the reduction of corruption and greater efficiency in service delivery by our public servants.

We have come a long way but there is still a long way to go.


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