By JAINDI KISERO jkisero@ke.natonmedia.com)
Posted Friday, January 27 2012 at 22:30
Posted Friday, January 27 2012 at 22:30
The government may have to refund an estimated Sh4 billion to taxpayers if the Finance Bill is not passed by June.
The biggest challenge facing the acting Finance minister Robinson Njeru Githae as he takes over running of the Treasury will be how to quickly mobilise Parliament to pass the Finance Bill for the current financial year.
Mr Uhuru Kenyatta, who stepped aside this week after being indicted by the International Criminal Court, left the scene before Parliament passed this critical piece of legislation.
For the first time in many years, the government finds itself in the middle of the financial year without a Finance Act — the legal instrument that supports tax collections.
The Treasury may have to refund all taxes and duties collected after the expiry of the Provisional Collection of Taxes and Duties Order, 2011, for the period January to June 2012.
Whether Mr Githae will deliver on the Finance Bill remains to be seen. (READ: A full plate awaits Githae)
A lawyer by profession, he does not rank high in the political pecking order within President Kibaki’s Party of National Unity.
Neither does he have the political stature and mettle to mobilise bi-partisan support for the Finance Bill.
Achieving partisan support for the Bill will be an uphill task for Mr Githae, especially because the controversy over the Finance Bill revolves around the hugely populist issue of control of bank lending rates.
Through the Finance Bill, the MP for Gem, Mr Jakoyo Midiwo, is pushing for the introduction of minimum and maximum rates which banks can charge to customers.
At the same time, the MP for Rangwe, Mr Martin Ogindo, has proposed major amendments to the formula which the Electricity Regulatory Commission applies in setting consumer prices of petroleum.
The difficult part is that the two MPs basically ambushed Mr Kenyatta by demanding to introduce these changes through the Finance Bill and at a time when it was at an advanced stage of being passed.
The amendment sprang up at the committee stage. Another major issue which Mr Githae will be expected to deliver on almost immediately is the $600 million (Sh51 billion) off-shore borrowing Mr Kenyatta has been planning to do.
As he left the Treasury, Mr Kenyatta was at an advanced stage of signing agreements with three big international commercial banks to arrange and advise on the huge borrowing.
The government is borrowing to substitute what it planned to borrow from the domestic market.
In this year’s Budget, Mr Kenyatta had planned to borrow Sh119 billion from the domestic market through the weekly Treasury bills and bonds.
This money was to be used mainly to fund the development budget. However, the problem Mr Kenyatta faced is that for most of last year the sale of Treasury bills under performed.
Indeed, the Treasury has been grappling with a quiet investor strike manifested by poor subscriptions on Treasury bond and bills with investors — mainly local banks and pension funds — persistently keeping away from participating in the Treasury bill auctions.
The upshot is that the Treasury has found itself short of an estimated Sh60 billion on its borrowing programme for this year.
The options for Mr Kenyatta were limited under the circumstances. In theory, cutting down expenditure was an option. (READ: Treasury in Sh72bn budget deficit)
But the truth of the matter is that reducing expenditure by a margin of the shortfall in the borrowing programme could only happen at the risk of major disruptions of infrastructure projects, a good number of which were at different stages of implementation.
Another option open to Mr Kenyatta was seeking concessional lending for lenders such as the World Bank.
The problem, however, is that concessionary financing comes with excessively intrusive conditionalities, often requiring the government to implement politically unpopular policies.
First, interest rates were moving up unpredictably and the exchange was unstable. Secondly, floating a bond in an election year was going to be a gamble. Hence the decision to go for a syndicated loan.A bond floated in the international marketplace was also an option. Two major factors made this option unviable for Mr Kenyatta.
It is a baptism of fire for Githae who will be coming into the economic-policy-making scene with strong economic credentials and when the numbers are not looking too good.
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