Visit our website:
http://www.france24.com
Like us on Facebook:
https://www.facebook.com/FRANCE24.English
Follow us on Twitter:
https://twitter.com/France24_en
Category
🗞
NewsTranscript
00:00 Well, Ken Gichinga is the Chief Economist at Mentori Economics in Nairobi.
00:04 He joins us now. Ken, thanks for speaking to me.
00:06 First of all, give us a bit of a sense as to how things have gotten quite so bad
00:11 and why Kenya is facing a cash crunch.
00:14 Well, the cash crunch has been caused by
00:19 the emerging debt priorities that the country has.
00:23 Government has said that they had to prioritise
00:28 debt repayment over salaries.
00:30 And you remember, debt has the first charge on the X-checker.
00:33 What that means is any revenue that's collected by the government,
00:38 the first priority has to go to the debt holders.
00:43 So that is the reason that has been provided.
00:47 So how significant is this specific struggle to pay civil servants?
00:53 It's certainly scary and destabilising for those directly affected.
00:57 But will there be any wider knock on effect when it comes to the Kenyan economy?
01:00 Absolutely. There'll be some broader repercussions,
01:04 because when you have delayed salaries by civil servants,
01:08 who are a significant part of the formal sector,
01:12 what happens is you have reduced cash in circulation.
01:16 What that happens, what that means is you'll have lower demand
01:20 for goods and services, and that will mean that businesses
01:23 will have a very hard time selling products out there.
01:27 And that could lead to struggling businesses and eventual unemployment.
01:32 Now, William Ruto, the president, has said that Kenya will not be defaulting,
01:37 but neither will it be taking on more debt.
01:39 So what are the options that you think he should or could realistically
01:44 be considering in trying to find a way out of this?
01:46 Well, I think there are three solutions to this.
01:51 I think first, you want to look on the expenditure side
01:54 and you want to reduce any wastage, any unnecessary spending.
01:59 There's still some element of unnecessary spending.
02:04 Number two, you want to look at the revenue collection.
02:07 Kenya's tax revenue is normally about 17% of GDP.
02:12 That's very low compared to countries such as Denmark,
02:16 that is about 34% of GDP.
02:20 So they need to change our tax policies, make it more progressive
02:25 and be able to raise more revenue.
02:28 And lastly, they might need to consider a bit of deficit financing,
02:31 which really means printing some money and injecting it into the system
02:36 to safeguard businesses.
02:38 Now, we heard some warnings not that long ago that the the debt crisis
02:43 actually affects the entirety of sub-Saharan Africa.
02:48 How so?
02:50 Well, at the advent of the COVID pandemic,
02:53 obviously businesses were shut down due to the COVID restrictions.
02:58 Obviously, what happened was the tax revenues that governments
03:04 were used to collecting weren't coming as expected.
03:09 So governments had to borrow much more to be able to fill those voids
03:14 as well as to provide COVID support.
03:16 Now in countries such as Kenya, that's elongated a bit
03:19 because we had a general election last year,
03:22 which also caused a bit of economic slowdown.
03:25 So these are the things that are coming back,
03:27 where you have a very subdued business environment.
03:30 So taxes aren't coming as expected and governments are forced to borrow much,
03:36 much more.
03:36 Thank you so much, Ken Gichinga there,
03:38 the chief economist at Mintoria Economics in Nairobi.
03:44 Nairobi.