Njuguna Ndung’u: Treasury chief calls on Kenyans to avoid ‘instant coffee’ mentality

Treasury Cabinet Secretary Njuguna Ndung’u. ILLUSTRATION | JOSEPH BARASA | NMG

Treasury Cabinet Secretary Njuguna Ndung’u tabled one of Kenya’s most controversial tax plans in recent years, prescribing some painful measures for taxpayers.

The economist sat back and watched the debate on the Finance Bill take a political dimension as individuals and lobby groups lined up before a parliamentary committee to oppose it.

But he is not new to controversy. Prof Ndung’u sat with the Business Daily ahead of his budget statement on Thursday to give his thoughts about the macroeconomic environment defining Kenya Kwanza’s debut budget, terming it as “the perfect storm”.

Ndung’u says that the Sh3.6 trillion spending plan has been a fragile balancing act as the government seeks to unlock pockets of new revenue through the much-debated Finance Bill 2023.

It’s your first Budget… How do you feel about it? Are you nervous?

It’s the first Budget that I am going to present as the CS for Treasury and Economic Planning, but it’s also the first Budget under the Kenya Kwanza administration.

It is also the first Budget being presented under the Bottom Up Economic model. The premise of that is that we are coming from a very devastating kind of economic slowdown.

We call it a perfect storm, if you want to replicate what the economic advisory team of the President has said. Why is it a perfect storm? Because we have come from persistent negative shocks, the Covid-19.

Even before we could actually overcome that, there were supply-side disruptions in the cost of energy and by the time again we dealt with that, there was a devastating drought, the kind we haven’t seen in 40 years.

And even before we could recover from that, there was the global financial crisis of monetary tightening and global dollar shortage. Those are very significant negative shocks.

What is the one thing you wish Kenyans understood more about Kenya Kwanza’s maiden Budget?

Policy interventions take time and what is important is to see interventions coming of age and also becoming sustainable.

This is very critical for the environment that we are in and this Budget in a sense seeks to create a policy space that will ignite the economic turnaround that we are looking for and the momentum for sustainability that we desire.

It is not a one-shot game and cannot just happen at once. We need to avoid this ‘instant coffee’ mentality. It’s a raft of policies that take a bit of time to permeate through the economy and for the impact to be felt.

In the current financial year, revenue mobilisation has been a major challenge. As you embark on the financial year 2023/24, does this matter concern you?

When I was the Governor of the Central Bank of Kenya, our tax revenue to GDP [gross domestic product] ratio used to be 22 percent.

I have come to realise that this has gone as far down as 13.7 percent and now we are moving back to 15.8 percent.

So, you can imagine, a movement from 22 percent to 13.7 percent is very devastating. That time when we were at 22 percent, I remember we argued that the convergence criteria for the East African Community needed to be at 25 percent tax revenue to GDP ratio.

Right now, we are at about 15.8 percent and you can imagine how much space we have to cover.

The bottom line is that we are not going to cover that gap by raising taxes but by expanding the tax base. So, in this Budget, we are looking to grow the economy and grow the cake from which then we can widen the base.

Many of us were used to you wearing the monetary hat as governor of the central bank, now you are here wearing a fiscal hat as Treasury CS. How different are the two? Do you feel like you are in unfamiliar territory?

The only difference is that fiscal policy deals with development because you have to look for resources and finance development. Monetary policy on the other hand simply supports the process. So, in essence, the two work together.

As far as I am concerned, the most important thing right now is how do we ignite development using the two policies which I am very familiar with.

The question is what is the optimal level of the policy mix that is going to create convergence between monetary and fiscal policy and create the momentum that we are looking for?

Incidentally, even my Principal Secretary, Dr Chris Kiptoo, has also been at the central bank and now at the Treasury.

The Finance Bill 2023 has elicited mixed reactions from Kenyans and defined the Budget debate. How has it been for you? Has it been difficult?

It can never be easy because you are always dealing with massive information and diverse parties with different opinions.

Most of the time, people may comment because they are not familiar with the real story and what is the driver behind it.

It is never going to be easy because as far as public choice theory is concerned, you always have to ensure that all factions of the society are satisfied.

The bottom line is always that we synthesise the issues and come up with an optimal outcome.

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