Kenya pay crisis: Government struggles to pay its workers on time

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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.

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