Kenya Going the Greece Way?

wagesWhen a government spends more than it can generate through its revenue creation mechanisms, there is only one option left for it: AUSTERITY MEASURES!

Public debt is a combination of internal and external borrowing by a given country. The borrowing on the other hand comes up as a result of budget deficits and need for money to fund other development projects within the country. When the borrowing exceeds some limits, then it becomes hazardous to a nation and leads to austerity measures being imposed on the citizens of the affected country.

The austerity measures may take the form of increased tax rates and introduction of new taxes in order to raise more revenue to repay the former debts plus the interests thereof; as well as a cut in government expenditure. The combined effect of the above measures is to help the government save its deteriorating economic conditions as it pushes its citizens to lifestyles of mere survival in the mean while. A recent case example is Greece where the government was forced to privatize many of its corporations and raise taxes as well as cut down on salaries and wages in order to save the crumbling economy.

Kenya with a 46.5% public debt to GDP ratio is no better either. The public debt is increasing every year and this can be seen from the huge percentage of the budget revenues allocated to repaying past debts plus their interests annually. As this starts to bite, the VAT Bill 2013 was passed raising VAT on some products and introducing into the VAT brackets some items that were formerly tax exempt. As usual, the VAT implication is transferred to the final consumers of the goods and services affected by the VAT changes. With 40% rate of unemployment in Kenya, should we be making products more affordable or more expensive for the citizens?

The recent move was a compulsory pay cut by 20% of state officers. We need not say that it is unfair to just wake up one day and announce a compulsory salary cut for your employees. Of importance though is the fact that this move is driven by the wide budget deficit which the government has to deal with every year. In an effort to curb that, innocent citizens are going to carry the cross of wage cuts as commodity prices rise due to tax increases.

The other day parastatals were merged and a good number of employees will be sent packing as the government streamlines its parastatals. Add that to the above rise in cost of living and pay cuts and you see a bleeding nation. By the end of the day, a keen eye will see a country creeping into bankruptcy just like Greece; and you will agree with me that,“Sisi wananchi ndio twaumia!”