Latest / The Mwango Capital Podcast / Finance Bill - What Next?

Transcript

Finance Bill - What Next? · The Mwango Capital Podcast

0:00
SPEAKER_03: Ladies and gentlemen, thank you very much for carving time out of your schedule today.
0:03
SPEAKER_03: It's been an incredible couple of days in our court of East Africa.
0:07
SPEAKER_03: It's been,
0:08
SPEAKER_03: I think to describe what's going on in this country at this moment as a watershed
0:11
SPEAKER_03: moment would be a colossal understatement in more ways than one.
0:15
SPEAKER_03: What essentially started as an argument against
0:18
SPEAKER_03: a tax law that millions of people across the country felt was essentially unfair
0:23
SPEAKER_03: and in no way reflective of the economic conditions that the country was facing
0:26
SPEAKER_03: that has led us to a very interesting watershed moment in kenya today where we're
0:30
SPEAKER_03: constantly asking questions around how we keep this project called kenya running
0:35
SPEAKER_03: and what lies ahead now to be clear over the next
0:38
SPEAKER_03: 40 to 60 minutes.
0:39
SPEAKER_03: What we're going to try and figure out is from an economic perspective,
0:42
SPEAKER_03: what do we need to do to get this country moving forward?
0:46
SPEAKER_03: Where do we go from here?
0:47
SPEAKER_03: Because in some ways we're in uncharted territory.
0:49
SPEAKER_03: But I'm glad to report that we have a fairly able set of panelists who will be
0:53
SPEAKER_03: helping us navigate the intricacies of what will come over the next
0:56
SPEAKER_03: four to six weeks with respect to not just the finance bill, but also the appropriation bill as well.
1:01
SPEAKER_03: Churchill Agutu is an economist at PIC Group.
1:03
SPEAKER_03: We also have Nikhil Hira,
1:04
SPEAKER_03: he's a partner at Cody Africa,
1:06
SPEAKER_03: regional executive director of the East African Association,
1:08
SPEAKER_03: someone who understands the tax law in this country and how it's evolved over the
1:12
SPEAKER_03: last two to three decades in ways that personally I don't understand.
1:16
SPEAKER_03: What he has forgotten about the tax code is probably not worth knowing.
1:19
SPEAKER_03: He bears a lot of institutional memory on that front.
1:22
SPEAKER_03: We also are joined by Stella Sirke, she's a senior research associate at Standard Investment Bank.
1:27
SPEAKER_03: Nicola, I want to start with you with regards to how we manage government spending going forward.
1:33
SPEAKER_03: The finance bill has been sent back to Parliament.
1:35
SPEAKER_03: MPs,
1:36
SPEAKER_03: given what we know now,
1:38
SPEAKER_03: will be back in session on the 23rd of July,
1:41
SPEAKER_03: and it will take some time to get a finance bill ready.
1:43
SPEAKER_03: So between now and then, how do we keep government operations
1:46
SPEAKER_03: running?
1:47
SPEAKER_03: Are we operating on the existing Finance Act?
1:50
SPEAKER_03: And what authority does a state then have to levy taxes and withdraw money out of
1:54
SPEAKER_03: the consolidated funds to keep operations running?
1:56
SPEAKER_03: Thanks, Ramon.
1:57
SPEAKER_03: Short,
1:58
SPEAKER_03: the laws that are already in place,
1:59
SPEAKER_03: that would include Finance Act 2020,
2:01
SPEAKER_03: which we also felt was introducing a significant amount of taxes that we didn't
2:05
SPEAKER_03: really want or need,
2:07
SPEAKER_03: for that matter,
2:07
SPEAKER_03: that is still in place.
2:09
SPEAKER_03: Each year,
2:09
SPEAKER_03: the Finance Act,
2:10
SPEAKER_03: it increases the taxes or brings in new taxes that are required to fund the budget
2:15
SPEAKER_03: for the coming year.
2:17
SPEAKER_03: which is in the Appropriations Act.
2:18
SPEAKER_03: So with the decision that they withdraw the Finance Act, there's a lot of legality around that and time.
2:24
SPEAKER_03: But just the one question that I've been noticing on Twitter is,
2:27
SPEAKER_03: does the fact that the President said it's going to be withdrawn,
2:30
SPEAKER_03: does that mean it's withdrawn because people are talking about in 14 days it'll
2:33
SPEAKER_03: become law if Parliament doesn't deal with it?
2:36
SPEAKER_03: My understanding,
2:36
SPEAKER_03: and we probably need a lawyer to talk about this rather than me,
2:39
SPEAKER_03: but my understanding is that because the President gave notice that
2:42
SPEAKER_03: last night in which he said that he wanted all the provisions in the Finance Act to
2:47
SPEAKER_03: be taken out,
2:48
SPEAKER_03: which effectively makes the bill null and void.
2:50
SPEAKER_03: But that still needs Parliament to approve, which is going to happen, as you said, on the 23rd of July.
2:54
SPEAKER_03: But that 14 days is now covered, I think, because he sent that notice last night.
3:00
SPEAKER_03: So I think we're OK and we just got to wait till the 23rd.
3:02
SPEAKER_03: So where does that leave us?
3:04
SPEAKER_03: We haven't got a Revenue Act for 2024-25.
3:07
SPEAKER_03: but we have an expenditure act, the appropriations.
3:10
SPEAKER_03: And so we budgeted expenditure,
3:12
SPEAKER_03: but we don't have any budgeted revenue to cope with it other than what we're
3:15
SPEAKER_03: already getting.
3:16
SPEAKER_03: And if you recall,
3:17
SPEAKER_03: the Treasury did send something in where they said that if the bill was taken out completely,
3:22
SPEAKER_03: we would be short 200 billion.
3:24
SPEAKER_03: And these are the areas where I'm going to cut it, is what he said.
3:27
SPEAKER_03: So there is a shortfall.
3:28
SPEAKER_03: It's going to meet a bigger deficit, but it does need us to have a finance act anyway.
3:32
SPEAKER_03: Even constitutionally, we need to have one.
3:34
SPEAKER_03: So I'm assuming and
3:36
SPEAKER_03: This is more of a legal question that once parliament comes back,
3:39
SPEAKER_03: there will be a redrafting of it,
3:40
SPEAKER_03: or maybe it'll start now for when they do come back and we'll go through the whole
3:44
SPEAKER_03: thing again.
3:44
SPEAKER_03: We will be joined a little later on in the conversation,
3:47
SPEAKER_03: I believe,
3:48
SPEAKER_03: by Wycliffe Oyo,
3:49
SPEAKER_03: who is a council member of the Nairobi branch of the Law Society of Kenya.
3:52
SPEAKER_03: So we'll certainly get a legal perspective on
3:54
SPEAKER_03: how this entire thing should work moving forward.
3:56
SPEAKER_03: But Churchill, to Nicol's point, we essentially have a spending plan in place.
3:59
SPEAKER_03: It's a massive spending plan, but we don't have the intended revenues to essentially go along with it.
4:04
SPEAKER_03: And even then,
4:05
SPEAKER_03: the estimate was that the finance bill in its original draft is going to raise the
4:09
SPEAKER_03: order of around 300 billion shillings in extra tax revenue.
4:12
SPEAKER_03: That clearly is off the table right now.
4:14
SPEAKER_03: What effect do you think this is going to have on our bonds and our ability to
4:18
SPEAKER_03: raise cash from the market?
4:19
SPEAKER_03: Thanks, Rama.
4:20
SPEAKER_02: As Nikhil has said, is that currently we are still relying on the existing tax laws.
4:25
SPEAKER_02: So the main tax laws in Kenya, Income Tax Act, Excise Duty, Value Added Tax.
4:30
SPEAKER_02: So those are there.
4:31
SPEAKER_02: It's only that each and every finance bill makes amendments on the existing tax laws.
4:36
SPEAKER_02: So the only thing that is being removed or what will not be in place is now the finance act.
4:42
SPEAKER_02: to its 24, following the refusal of the president to assent into that.
4:46
SPEAKER_02: And the impact of that is around $302 billion.
4:48
SPEAKER_02: This is my estimates.
4:49
SPEAKER_02: I know there's a number, $302 billion, but I'm looking at $302 billion on the revenue to be generated.
4:56
SPEAKER_02: But that notwithstanding,
4:58
SPEAKER_02: The total revenue to be generated is around 2.9 trillion.
5:01
SPEAKER_02: That's what you call the ordinary revenue.
5:03
SPEAKER_02: Tax revenue plus non-tax revenue.
5:05
SPEAKER_02: And this is within the next 12 months from July 1st all the way to June.
5:10
SPEAKER_02: You can argue that there's still some time for the authorities to either come up
5:15
SPEAKER_02: with the new revenue amendments,
5:18
SPEAKER_02: some amendments of sorts or another bill.
5:21
SPEAKER_02: at least to raise the prerequisite revenue.
5:24
SPEAKER_02: Or on the other side,
5:25
SPEAKER_02: we're likely to see some cuts,
5:27
SPEAKER_02: so at least to be able to offset the negative impact of the Finance Act 2024 will
5:33
SPEAKER_02: not be in place.
5:34
SPEAKER_02: So those are the scenarios that we're keeping an eye on at the moment, Rama.
5:38
SPEAKER_03: We'll certainly get to the Appropriations Act slash Bill side of it in a moment.
5:41
SPEAKER_03: But I want to bring in Wycliffe Oyo,
5:43
SPEAKER_03: as I mentioned earlier,
5:44
SPEAKER_03: he's a council member of the Nairobi branch of the Law Society of Kenya.
5:47
SPEAKER_03: Wycliffe, I know you and your colleagues have had a really intense week.
5:52
SPEAKER_03: Can you walk us through what the Law Society of Nairobi branch is doing at the moment?
5:55
SPEAKER_01: Thank you very much,
5:56
SPEAKER_01: Rama,
5:56
SPEAKER_01: on behalf of not just the Law Society of Nairobi branch,
6:00
SPEAKER_01: but the Law Society of Kenya generally and all its branches.
6:03
SPEAKER_01: We've indeed had a very busy week,
6:06
SPEAKER_01: a very mixed week in terms of what has been going on in the country and which all
6:11
SPEAKER_01: of us know,
6:11
SPEAKER_01: culminating,
6:12
SPEAKER_01: of course,
6:13
SPEAKER_01: in the event we saw yesterday where the president refused to the bill and referred
6:18
SPEAKER_01: it back to parliament for reconsideration.
6:21
SPEAKER_01: At this point in time,
6:22
SPEAKER_01: as we speak right now,
6:23
SPEAKER_01: we have a parallel court ruling that is being delivered,
6:28
SPEAKER_01: I believe maybe has been delivered a few minutes ago by Justice Mugambi,
6:32
SPEAKER_01: touching on a related but quite different matter relating to the deployment of the KDF.
6:37
SPEAKER_01: which we saw.
6:38
SPEAKER_01: So members of the Law Society are following that and keeping tabs on that.
6:43
SPEAKER_01: And of course,
6:43
SPEAKER_01: we've also been going around the country to try and help those who've been abducted,
6:48
SPEAKER_01: those who've been arraigned in court for one charge or another relating to the
6:53
SPEAKER_01: protest following Parliament's passage of the Finance Bill 2024.
6:57
SPEAKER_01: So that's where we are generally.
6:59
SPEAKER_01: But insofar as the legal issues surrounding the bill are concerned,
7:03
SPEAKER_01: we are keeping a close eye with respect to just the legality of the president's
7:09
SPEAKER_01: actions in terms of refusing to assent to the bill,
7:13
SPEAKER_01: referring the bill back,
7:14
SPEAKER_01: but also what precipitate steps then are taken from here.
7:18
SPEAKER_01: And I think it's worth mentioning at this point in time that we had communication
7:23
SPEAKER_01: that the Speaker of the House,
7:24
SPEAKER_01: the Speaker of the National Assembly,
7:26
SPEAKER_01: that is,
7:26
SPEAKER_01: has communicated to the House the President's decision not to assent to the bill
7:31
SPEAKER_01: and has issued timelines within which the committee,
7:34
SPEAKER_01: the Finance Committee...
7:36
SPEAKER_01: is supposed to consider the president's reservations to the bill and then make
7:41
SPEAKER_01: appropriate recommendations to the House for consideration.
7:44
SPEAKER_01: So at this point in time,
7:45
SPEAKER_01: we expect that the timelines given by the Speaker will guide the process of
7:50
SPEAKER_01: reconsideration of the bill and then Parliament will be reconvened to consider the
7:56
SPEAKER_01: report by the Committee.
7:57
SPEAKER_01: I understand that there are standing orders, particularly Standing Order 29,
8:03
SPEAKER_01: Parliament can be recalled for a special sitting,
8:06
SPEAKER_01: and I believe this is more than a special sitting,
8:09
SPEAKER_01: to look at what the committee would have come up with.
8:12
SPEAKER_03: Let me just interrupt briefly to bring our audience up to speed with what we are
8:15
SPEAKER_03: seeing on that case that you are referring to.
8:18
SPEAKER_03: Based on the updates that we've seen coming out,
8:20
SPEAKER_03: this is reporting from Nation Media,
8:22
SPEAKER_03: and of course,
8:22
SPEAKER_03: a few corrections as well that have come in on my timeline at the moment.
8:25
SPEAKER_03: The High Court is essentially saying,
8:27
SPEAKER_03: in summary,
8:27
SPEAKER_03: ADF deployment is deemed to be necessary by the terms of engagement
8:31
SPEAKER_03: duration and the areas in which they can operate have to be gazetted within two days.
8:36
SPEAKER_03: And the court says it retains residual powers to address any complaints or rights violations.
8:40
SPEAKER_03: So that's the rough summary that we're getting at the moment.
8:42
SPEAKER_03: We haven't seen the full text yet, but once we do, of course, we'll pull it up.
8:45
SPEAKER_03: Apologies for the interruption.
8:46
SPEAKER_03: Please continue.
8:47
SPEAKER_01: Very well, Rapa.
8:48
SPEAKER_01: And maybe just to add on to what you're saying,
8:50
SPEAKER_01: today was the ruling on the application for conservatory orders were made in the
8:55
SPEAKER_01: interim where the Law Society of Kenya and other petitioners are seeking to have
9:01
SPEAKER_01: the deployments suspended temporarily.
9:03
SPEAKER_01: And of course,
9:03
SPEAKER_01: the court will have a chance when the matter is set down into parties to both sides
9:08
SPEAKER_01: and therefore make a conclusive decision on the same.
9:11
SPEAKER_01: Indeed, as you correctly put it, we will also
9:14
SPEAKER_01: monitor the hearing and determination of the full application and petition.
9:19
SPEAKER_01: While the President has power under the Constitution and particularly under Article
9:24
SPEAKER_01: 115 of the Constitution to refer the bill back to Parliament with reservations,
9:28
SPEAKER_01: the reservations we've seen in this case are peculiar.
9:31
SPEAKER_01: in the sense that the president is proposing a deletion of the entire B.
9:37
SPEAKER_01: And that is a very interesting perspective because I'm not sure this has happened before.
9:43
SPEAKER_01: I think we are now in unprecedented waters here.
9:47
SPEAKER_01: And it will be interesting just to see then how does that proceed.
9:51
SPEAKER_01: But the legal question that we are grappling with in that context is what position
9:56
SPEAKER_01: does the president occupy in that space in terms of the lawmaking process,
10:01
SPEAKER_01: especially regarding the finance bill?
10:17
SPEAKER_01: A bill by the president.
10:18
SPEAKER_01: Because he doesn't have veto powers,
10:20
SPEAKER_01: explicit veto powers,
10:22
SPEAKER_01: for example,
10:23
SPEAKER_01: that the American president would have.
10:25
SPEAKER_01: Correct.
10:25
SPEAKER_01: Correct.
10:26
SPEAKER_01: That's the conundrum we now find ourselves in because he seems to be saying that I can veto the bill.
10:31
SPEAKER_01: So the question there is, can he do that or can the term reservations under Article 115...
10:38
SPEAKER_01: be read to mean a total rejection of that bill?
10:41
SPEAKER_01: And then what does parliament make of that when it considers or reconsiders its
10:46
SPEAKER_01: position in view of the president's sentiments?
10:49
SPEAKER_01: I think this is a legal question that will be answered one way or another,
10:54
SPEAKER_01: and it will be interesting to see how
10:56
SPEAKER_01: That is dead to a drama.
10:58
SPEAKER_03: Let's try and game this out in terms of how this could play out.
11:00
SPEAKER_03: For the sake of argument,
11:01
SPEAKER_03: the bill comes back to the House on the 23rd of July and the Finance Committee in
11:06
SPEAKER_03: its recommendations basically just says,
11:08
SPEAKER_03: we agree,
11:09
SPEAKER_03: we consent to that of the President to say we put this bill to the House,
11:12
SPEAKER_03: which has quite literally no articles in it.
11:14
SPEAKER_03: At that point, then what happens?
11:15
SPEAKER_03: Does the Finance Committee chair, because at that point, they're the ones who are sponsoring it.
11:19
SPEAKER_03: Do they then have the legal power under some of the standing orders to withdraw it entirely,
11:24
SPEAKER_03: thereby killing the bill?
11:25
SPEAKER_03: Or should MPs proceed to pass a bill that, in essence, doesn't actually have any articles in it?
11:32
SPEAKER_01: Very interesting, Rama.
11:33
SPEAKER_01: But in my mind,
11:34
SPEAKER_01: what is going to happen is that the committee is going to consider the president's reservations.
11:40
SPEAKER_01: But we must understand the nature of the bill.
11:43
SPEAKER_01: I think that becomes very crucial because if you look at the bill,
11:46
SPEAKER_01: It has two columns, if I can call them that.
11:49
SPEAKER_01: One where it has the provision and then the other column is the recommendation of the committee.
11:55
SPEAKER_01: So that if the provision,
11:56
SPEAKER_01: for example,
11:57
SPEAKER_01: is to amend the Excise Duty Act to introduce a certain provision in that act,
12:02
SPEAKER_01: then the recommendation by the committee would be to maybe levy a penalty or levy a
12:07
SPEAKER_01: tax or levy whatever it is they want to levy at a certain percentage.
12:11
SPEAKER_01: then if they are going to accede to what the president is saying,
12:16
SPEAKER_01: the simpler option would be to just say that the recommendation now becomes delete
12:22
SPEAKER_01: or rather amend by deleting that provision.
12:26
SPEAKER_01: In that case, Rama, interestingly, the bill will not be
12:30
SPEAKER_01: A blank bill,
12:31
SPEAKER_01: but it would be a bill where there is the proposal or the provision and then there
12:36
SPEAKER_01: is the recommendation.
12:36
SPEAKER_01: And in all those cases, the recommendation then becomes delete or amend by deleting.
12:41
SPEAKER_01: The interesting bit is that then parliament would still have to debate that bill in
12:46
SPEAKER_01: that format and make up its mind whether to accept or reject.
12:51
SPEAKER_01: the bill in the manner then that the committee would have done it in consonance
12:55
SPEAKER_01: with what the president is proposing.
12:57
SPEAKER_01: Going back into the Committee of the Whole House process,
12:59
SPEAKER_01: third reading and so on,
13:00
SPEAKER_01: essentially you would go back to that.
13:02
SPEAKER_01: That's what it looks like if the speakers communicate anything to go by.
13:05
SPEAKER_01: But that also,
13:06
SPEAKER_01: again,
13:06
SPEAKER_01: presents the second legal challenge,
13:09
SPEAKER_01: because if you look at,
13:11
SPEAKER_01: for example,
13:11
SPEAKER_01: standing order 150 of the House,
13:14
SPEAKER_01: It gives the understanding that once the committee is done with it,
13:18
SPEAKER_01: then the committee is found as official.
13:20
SPEAKER_01: Their work is done at that point in time where they cannot reopen the bill.
13:25
SPEAKER_01: Because the other question then that will come is how far back can we go?
13:29
SPEAKER_01: Can we go back, for example, and consider?
13:31
SPEAKER_01: the various memoranda that were submitted in respect of the bill,
13:36
SPEAKER_01: the clear answer to that question from the constitution seems to be no,
13:39
SPEAKER_01: because the constitution talks about then parliament at this point considering the
13:43
SPEAKER_01: president's reservations.
13:45
SPEAKER_01: So we may not go back the whole way,
13:48
SPEAKER_01: but as it stands,
13:50
SPEAKER_01: the speaker is saying,
13:51
SPEAKER_01: let the committee reconsider it and get back to the house with a report on what
13:56
SPEAKER_01: they think.
13:57
SPEAKER_01: of the president's reservations to the bill.
14:00
SPEAKER_01: Now,
14:00
SPEAKER_01: if we want to muddy the waters further,
14:02
SPEAKER_01: Rama,
14:03
SPEAKER_01: we may ask ourselves,
14:04
SPEAKER_01: what if the committee and the House reject the president's proposals?
14:09
SPEAKER_01: What if they say, no, we do not agree with the president, or rather,
14:12
SPEAKER_01: We want to amend the bill.
14:14
SPEAKER_01: And then the question becomes, do they have the two-thirds majority needed to override the president?
14:18
SPEAKER_01: That is the interesting bit.
14:20
SPEAKER_01: That is the interesting bit.
14:21
SPEAKER_01: Because what the law says,
14:23
SPEAKER_01: and I think that is the other important thing,
14:27
SPEAKER_01: that for them,
14:28
SPEAKER_01: they would have to resubmit the bill to the president for assent.
14:31
SPEAKER_01: Now, if the president assents to the bill, that's a clear path.
14:35
SPEAKER_01: What if he doesn't assent to the bill because his recommendations have not been taken into consideration?
14:41
SPEAKER_01: then the law deems it to have been assented to after the expiry of the period.
14:46
SPEAKER_01: So that's the other important thing.
14:48
SPEAKER_01: But what you're saying is important in terms of Article 154,
14:52
SPEAKER_01: which now puts the catch on Parliament if it disagrees with the president's
14:56
SPEAKER_01: recommendations to get what we would call a super majority of the members of the
15:02
SPEAKER_01: House to now pass that bill,
15:04
SPEAKER_01: ignoring what the president has recommended.
15:07
SPEAKER_01: So that is the legal conundrum now we stand at.
15:10
SPEAKER_01: But as the Law Society of Kenya,
15:12
SPEAKER_01: maybe it's also worth mentioning this at this point and just other interested parties,
15:16
SPEAKER_01: because as the previous speakers have said,
15:19
SPEAKER_01: the bill has far-reaching implications,
15:20
SPEAKER_01: not just on Kenya's public finance,
15:23
SPEAKER_01: but on Kenya's debt and all other related issues.
15:26
SPEAKER_01: We would be waiting for parliament to do its part.
15:30
SPEAKER_01: Then now we take it up.
15:32
SPEAKER_01: in the appropriate fora,
15:33
SPEAKER_01: including in courts,
15:34
SPEAKER_01: to maybe examine it on the backdrop of legality to see if those provisions or even
15:40
SPEAKER_01: the process itself would have been compliant with the law.
15:43
SPEAKER_03: Let me muddy the waters a little bit,
15:45
SPEAKER_03: because I know as lawyers,
15:46
SPEAKER_03: as members of LSK,
15:47
SPEAKER_03: you all are quite busy at the moment,
15:48
SPEAKER_03: but we've covered the finance bill side of it.
15:51
SPEAKER_03: But the thing that we often tend to forget,
15:52
SPEAKER_03: and to be fair,
15:54
SPEAKER_03: we in the media tend to focus more the finance bill than the appropriation bill.
15:57
SPEAKER_03: And here's a quick and dirty explanation of how these two work.
15:59
SPEAKER_03: The finance bill is essentially giving legal authority to our representatives and
16:04
SPEAKER_03: governments to essentially say,
16:05
SPEAKER_03: you can impose tax X,
16:06
SPEAKER_03: Y,
16:07
SPEAKER_03: Z,
16:07
SPEAKER_03: right?
16:07
SPEAKER_03: You can raise taxes on casalaga or beer by X amount of money.
16:12
SPEAKER_03: But the authority,
16:13
SPEAKER_03: the legal authority for our employees to go out there and spend our money,
16:17
SPEAKER_03: that comes in through the Appropriation Act.
16:19
SPEAKER_03: And that then brings me to Section 222 of the Constitution,
16:23
SPEAKER_03: because in this instance,
16:24
SPEAKER_03: the Appropriation Act
16:26
SPEAKER_03: is essentially the legal document that says we want to spend this much money.
16:30
SPEAKER_03: Going back to what Sheridan said, his argument is, I want to cut spending.
16:34
SPEAKER_03: So what happens now?
16:36
SPEAKER_03: Should he bring in an entirely new supplementary appropriation bill in order to
16:40
SPEAKER_03: essentially reflect those spending cuts?
16:42
SPEAKER_03: Or can those changes be made to the existing
16:46
SPEAKER_01: Thank you, Rama, for that question.
16:49
SPEAKER_01: I think we may need to go back a little more on the unfortunate or fortunate
16:54
SPEAKER_01: incidents of Tuesday this week,
16:56
SPEAKER_01: depending on where we stand.
16:58
SPEAKER_01: We may want to remember,
16:59
SPEAKER_01: as you've correctly pointed out,
17:01
SPEAKER_01: that once Parliament passed the finance bill,
17:04
SPEAKER_01: it had started debating the appropriations bill.
17:08
SPEAKER_01: And I think at that point, members of the opposition walked out of the House.
17:12
SPEAKER_01: But the leader of majority had actually tabled that bill for discussion at that point.
17:16
SPEAKER_01: Given the disruption that happened thereafter,
17:19
SPEAKER_01: it is the position as we sit here today that that act has not been debated,
17:24
SPEAKER_01: neither has it been passed.
17:25
SPEAKER_01: And it is indeed true that it is the act that gives the authority,
17:30
SPEAKER_01: as you say,
17:31
SPEAKER_01: to the various bodies to now spend this money.
17:33
SPEAKER_01: Now,
17:33
SPEAKER_01: the straight answer to your question is to be found again at Article 222 of the Constitution,
17:40
SPEAKER_01: which says that if the act for a particular financial year has not been assented to
17:45
SPEAKER_01: or is not likely to be assented to by the beginning of that financial year,
17:50
SPEAKER_01: and I think that's now the position we find ourselves in,
17:53
SPEAKER_01: then the National Assembly may authorize the withdrawal of money from the
17:58
SPEAKER_01: consolidated fund.
18:00
SPEAKER_01: So the constitution seems to have an inbuilt solution to what we are seeing.
18:05
SPEAKER_01: But of course,
18:06
SPEAKER_01: the position of the law is that once a new act has not come in to repeal a previous one,
18:12
SPEAKER_01: the previous one so continues to be in place until otherwise repealed by the new act.
18:16
SPEAKER_01: Now,
18:17
SPEAKER_01: the important part there would be,
18:19
SPEAKER_01: what are the checks and balances then that the country would have in terms of
18:24
SPEAKER_01: ensuring that this power get donated to parliament?
18:27
SPEAKER_01: To authorize a withdrawal from the consolidated fund is first not abused.
18:32
SPEAKER_01: And secondly, that funds continue to be applied for the purposes for which they were intended.
18:38
SPEAKER_01: That is just not only a legal question,
18:40
SPEAKER_01: but it's also a political question in terms of then how does the government of the
18:45
SPEAKER_01: day
18:46
SPEAKER_01: continue operating without the appropriation act passed and without going into excesses.
18:54
SPEAKER_01: And I think Rama,
18:55
SPEAKER_01: we don't operate in a vacuum,
18:57
SPEAKER_01: even though as lawyers sometimes we like textualist interpretations of the
19:01
SPEAKER_01: provisions of the law.
19:02
SPEAKER_01: But the current political environment is that one of the biggest problems Kenyans have,
19:08
SPEAKER_01: even with the finance deal,
19:09
SPEAKER_01: is government excesses and the lavish spending and the spending on probably
19:14
SPEAKER_01: inappropriate objects.
19:16
SPEAKER_01: And I think that then we go back to what we have seen happening this week and next week,
19:22
SPEAKER_01: the people taking up power under Article 1 of the Constitution.
19:27
SPEAKER_01: to exercise sovereign power directly to oversight the government and ensure that
19:33
SPEAKER_01: what the people want is what happens.
19:35
SPEAKER_03: Let me just interrupt briefly because looking at an update here from Zalendo Watch,
19:39
SPEAKER_03: they pointed out this was on the 25th of June,
19:40
SPEAKER_03: so two days ago,
19:41
SPEAKER_03: essentially Tuesday.
19:42
SPEAKER_03: They're pointing out that the Appropriations Bill was actually passed by Parliament.
19:46
SPEAKER_03: Assuming that's the situation we're in now,
19:48
SPEAKER_03: the bill essentially had left,
19:50
SPEAKER_03: for lack of a better word,
19:50
SPEAKER_03: it left Parliament.
19:52
SPEAKER_03: It's essentially now being transmitted to the head of state.
19:54
SPEAKER_03: Are we looking at the same path of approval or dissent that the finance bill also went through?
20:00
SPEAKER_03: Because if he says,
20:01
SPEAKER_03: I want to cut spending,
20:03
SPEAKER_03: then by definition,
20:04
SPEAKER_03: that means that a lot of the ideas that are baked into the appropriations bill are
20:07
SPEAKER_03: sent to him by members of parliament should essentially now be changed.
20:11
SPEAKER_03: And at that point, what's the sensible thing to do?
20:13
SPEAKER_03: Do we just draft an entirely new one or do we have to make changes to the existing one?
20:17
SPEAKER_01: I believe,
20:18
SPEAKER_01: Rama,
20:19
SPEAKER_01: that to me does not present a bigger conundrum than the finance bill,
20:22
SPEAKER_01: because then the appropriations bill is debated alongside the finance bill for the
20:28
SPEAKER_01: simple reason that then the government's objectives for that financial year should
20:32
SPEAKER_01: be reflected in the appropriations act.
20:34
SPEAKER_01: What does the government want to do with this money it's collecting?
20:37
SPEAKER_01: How does it want to rain on state excess?
20:40
SPEAKER_01: I think the practical thing to do right now would be to allow
20:43
SPEAKER_01: parliament to reconsider the finance bill along the lines proposed by the president
20:47
SPEAKER_01: rather and then relook the appropriations bill or whether it's an act at that point
20:52
SPEAKER_01: to probably amend it to be in consonance with what is happening the president said
20:57
SPEAKER_01: something very interesting when he was addressing the press yesterday he said the
21:00
SPEAKER_01: people have refused this bill
21:02
SPEAKER_01: The consequence of that is that if the government is saying we want to cut spending
21:07
SPEAKER_01: and the people are saying don't cut spending,
21:09
SPEAKER_01: then the government is currently listening to the people.
21:11
SPEAKER_01: So I think then it must also be the case that the Appropriations Act,
21:16
SPEAKER_01: whether passed or not,
21:18
SPEAKER_01: must be relooked at in that context.
21:20
SPEAKER_01: Because again, what is to be appropriated, whatever it is to that is to be spent, has to be raised.
21:26
SPEAKER_01: And we heard from the financial experts telling us that the bill was supposed to
21:30
SPEAKER_01: raise an additional 300 billion shillings.
21:34
SPEAKER_01: And some of that was to go into this kind of expenditure.
21:38
SPEAKER_01: So it has to be relooked in terms of just not being a redundant act that is
21:43
SPEAKER_01: incapable of being executed and operationalized,
21:47
SPEAKER_01: but must be read in tandem with the prevailing circumstances.
21:51
SPEAKER_01: So that's what would be my feeling on that drama.
21:54
SPEAKER_01: And I think what we don't probably understand well as a country is the nature of
21:58
SPEAKER_01: the Act and the nature of the Finance Bill.
22:01
SPEAKER_01: While the Appropriations Act is an act,
22:03
SPEAKER_01: if I could call it that,
22:04
SPEAKER_01: the Finance Bill is a miscellaneous bill seeking to amend various pieces of legislation,
22:09
SPEAKER_01: the Income Tax Act,
22:11
SPEAKER_01: the Excess Duty Act,
22:12
SPEAKER_01: the VAT Act,
22:13
SPEAKER_01: the Affordable Housing Act.
22:15
SPEAKER_01: So I think dealing with the Appropriations Bill,
22:18
SPEAKER_01: despite it being a money bill,
22:19
SPEAKER_01: would not depart materially from how we are going to now treat
22:23
SPEAKER_01: the finance bill in light of the circumstances we find ourselves in.
22:27
SPEAKER_03: Robert, can you come in there for a minute?
22:29
SPEAKER_03: Yes, Nicola, please go in.
22:30
SPEAKER_03: Just on something we have said, look, there were bits of finance bill 2024 that were quite nice.
22:35
SPEAKER_03: Extension of the amnesty, increasing pension deductions, that sort of thing.
22:39
SPEAKER_03: And one of the things we have said,
22:41
SPEAKER_03: maybe when it comes back to parliament,
22:43
SPEAKER_03: they go through and they say,
22:44
SPEAKER_03: okay,
22:44
SPEAKER_03: we'll keep this.
22:45
SPEAKER_03: We won't destroy the whole thing, but we'll keep this, we'll keep that.
22:47
SPEAKER_03: If we're optimistic...
22:49
SPEAKER_03: They'll keep all the good bits and destroy all the bad bits.
22:51
SPEAKER_03: But at the same time,
22:52
SPEAKER_03: the appropriations bill,
22:54
SPEAKER_03: which I believe has been passed by Parliament,
22:55
SPEAKER_03: does also have to go to the president for a cent.
22:58
SPEAKER_03: And I think in his speech the other day, yesterday maybe it was, he did talk about cutting expenditure.
23:03
SPEAKER_03: That presumably gives him an opportunity to go back to Parliament and say, amend and cut following.
23:08
SPEAKER_03: And as we've just said,
23:09
SPEAKER_03: both of them can be debated by Parliament on the 23rd of July or whatever it is
23:13
SPEAKER_03: back here.
23:14
SPEAKER_03: Indeed.
23:14
SPEAKER_03: And we'll get to the spending side of it in a moment.
23:17
SPEAKER_03: But I know Annie Wycliffe has got a fairly tight schedule.
23:19
SPEAKER_03: Wycliffe,
23:19
SPEAKER_03: can you give us any updates on the work LSK is doing at the moment to try and get
23:23
SPEAKER_03: all the individuals who have been detained held for the better part of the week out
23:28
SPEAKER_03: of police custody at the moment?
23:30
SPEAKER_03: Are there any updates that LSK can share on that?
23:32
SPEAKER_01: Thank you, Rama.
23:33
SPEAKER_01: We have two updates we can give on that.
23:35
SPEAKER_01: The first one is that yesterday we appeared before court where 56 protesters were
23:42
SPEAKER_01: arraigned in court and the prosecution made applications to detain them for 14 days
23:49
SPEAKER_01: on the basis that they wanted to
23:51
SPEAKER_01: conclude investigations relating to various charges that they want to prefer,
23:55
SPEAKER_01: including arson and disturbance of the peace and things like that.
23:59
SPEAKER_01: The court granted all the 56 accused persons a bail of 5,000 shillings each.
24:06
SPEAKER_01: And with the assistance of our various partners,
24:09
SPEAKER_01: we managed to help them,
24:10
SPEAKER_01: especially the indignant ones who could not raise that money.
24:14
SPEAKER_01: And all of them were released this morning from the central police station.
24:19
SPEAKER_01: Number two is that the LSK has also managed to obtain an order regarding the
24:25
SPEAKER_01: disappearances and the abductions of people who we have information that have been
24:32
SPEAKER_01: disappearing and it's been on the news.
24:34
SPEAKER_01: One of the important aspects of that order given by the court
24:37
SPEAKER_01: is that the members of the Law Society of Kenya have a right to access any police
24:42
SPEAKER_01: station within the republic to find out if these people are being held in these
24:47
SPEAKER_01: police stations.
24:48
SPEAKER_01: But number two,
24:49
SPEAKER_01: and more importantly,
24:50
SPEAKER_01: is that the order says that because some of these people have been held outside the
24:55
SPEAKER_01: 24-hour limit,
24:56
SPEAKER_01: then they should be unconditionally released.
24:59
SPEAKER_01: upon confirmation that they are being so held and that then the prosecution or the
25:04
SPEAKER_01: ODP can at that point determine if they want to press charges,
25:07
SPEAKER_01: then make those appropriate applications or make those appropriate arrests.
25:11
SPEAKER_01: But at this time, the position is that they should be unconditionally released.
25:14
SPEAKER_01: And I think pursuant to those orders, we've seen activists such as Gabriel Oguda released.
25:20
SPEAKER_01: or left by the police,
25:22
SPEAKER_01: because one of the things we are decrying is that we have a situation where people
25:28
SPEAKER_01: are arrested and not booked,
25:30
SPEAKER_01: and then it becomes very difficult,
25:31
SPEAKER_01: one,
25:31
SPEAKER_01: to trace them,
25:32
SPEAKER_01: and then number two,
25:33
SPEAKER_01: to comply with that 24-hour timeline to be brought before a court of law to face
25:37
SPEAKER_01: whatever charges they are.
25:38
SPEAKER_01: So that order is very important,
25:40
SPEAKER_01: but we are still consolidating information on whoever else is missing so that when
25:47
SPEAKER_01: and if necessary,
25:48
SPEAKER_01: we amend the application for habeas corpus that we made before court to include
25:53
SPEAKER_01: these other missing persons just to ensure that everyone is accounted for.
25:58
SPEAKER_01: Number three,
25:59
SPEAKER_01: Rama,
25:59
SPEAKER_01: and more importantly,
26:00
SPEAKER_01: is that we've also set up a hotline at the Law Society of Kenya to encourage
26:04
SPEAKER_01: members of the public who have any cases of missing persons to immediately report
26:09
SPEAKER_01: these cases.
26:09
SPEAKER_01: And then we will take it up from there.
26:12
SPEAKER_01: And that comes to the number four.
26:13
SPEAKER_01: And last thing we are doing is that we've also set up a group of lawyers who are
26:18
SPEAKER_01: dedicated to following up on these cases.
26:21
SPEAKER_01: And we've dispatched teams to...
26:24
SPEAKER_01: all possible police stations throughout the country to ensure that once we get an
26:29
SPEAKER_01: alert and we have information that someone is missing and is possibly being held at
26:33
SPEAKER_01: a particular place or police station,
26:35
SPEAKER_01: then we respond immediately and ensure that constitutional human rights are not
26:40
SPEAKER_01: violated or that violations do not continue.
26:42
SPEAKER_01: So we also thank the members of the public for their help,
26:45
SPEAKER_01: for their support,
26:46
SPEAKER_01: sometimes even financial in terms of the bail and that kind of thing in ensuring
26:51
SPEAKER_01: that even at this time,
26:52
SPEAKER_01: despite everything,
26:54
SPEAKER_01: we respect the constitutional rights of Kenyans.
26:57
SPEAKER_01: Indeed.
26:57
SPEAKER_03: And there is an update here.
26:59
SPEAKER_03: The speaker apparently actually did put up a bit of an explainer here saying exactly what happens now.
27:04
SPEAKER_03: And one of the sections of it, I'm just going to read it verbatim.
27:07
SPEAKER_03: The question was, can the Finance Bill 2024 become law essentially by law?
27:12
SPEAKER_03: passage of time referring to that 14 and 21 day limits that essentially referred to
27:16
SPEAKER_03: in the constitution and he says quote unquote no having been referred to the
27:21
SPEAKER_03: national assembly for reconsideration on account of the president's reservations
27:25
SPEAKER_03: the finance bill 2024 cannot become law through mere lapse of time we'll put a link
27:30
SPEAKER_03: to that of course directly under
27:32
SPEAKER_03: this particular link to this space as it were.
27:35
SPEAKER_03: Wycliffe, I can't thank you enough.
27:37
SPEAKER_03: And I'm sure NSK is going to get a lot of feedback and data from the audience and
27:42
SPEAKER_03: Kenyans at large,
27:43
SPEAKER_03: especially with respect to the people who are still being held in Comiticado.
27:46
SPEAKER_03: I want to turn the conversation back to the spending side of things.
27:50
SPEAKER_03: Now that we essentially appear that the finance bill 2024, for the sake of argument, is basically debt.
27:55
SPEAKER_03: The appropriations bill is something else entirely.
27:58
SPEAKER_03: But moving forward over the next six months, we clearly are in an interesting dilemma.
28:03
SPEAKER_03: We've essentially hit our limits for raising taxes in this country.
28:06
SPEAKER_03: We've gotten to a point where we've said, no.
28:08
SPEAKER_03: You simply cannot squeeze water out of a stone.
28:11
SPEAKER_03: However, we also happen to have an enormous amount of cash that is due on the debt side of things.
28:16
SPEAKER_03: We've got a billion dollars or thereabouts that is essentially due just in debt redemption.
28:21
SPEAKER_03: The Exim Bank of China, there's a roughly similar amount that's due to trade in the Belt and Bank.
28:25
SPEAKER_03: For the next fiscal year, all of these needs have to be met.
28:28
SPEAKER_03: And it seems to me that the one place you can probably find a bit of briefing room
28:32
SPEAKER_03: might be in debt service.
28:34
SPEAKER_03: The bigger question, though, is how do we go about it?
28:37
SPEAKER_03: Stella, I want to start with you on that question.
28:39
SPEAKER_03: Where can we find briefing room in debt service, both domestic and foreign?
28:43
SPEAKER_00: Thanks, Rama, for the question.
28:45
SPEAKER_00: The direct and best way that you can find breathing room from debt service is
28:50
SPEAKER_00: through restructuring of debt.
28:52
SPEAKER_00: And this can be done mostly on the external side.
28:56
SPEAKER_00: We can work around with debt from consensual lenders,
29:00
SPEAKER_00: given that,
29:00
SPEAKER_00: again,
29:00
SPEAKER_00: most of our debt,
29:02
SPEAKER_00: over 50% is from multilateral lenders.
29:05
SPEAKER_00: So that, I believe, can be worked around in terms of negotiating more terms with regards to the
29:12
SPEAKER_00: period of payment and what we expect to be paying in the next two to three fiscal years.
29:18
SPEAKER_00: Either way,
29:19
SPEAKER_00: the problem is looking at now the deficit that we are supposed to be getting from
29:25
SPEAKER_00: the current state of affairs now that we do not have a finance bill.
29:28
SPEAKER_00: to increase or to prop up revenues for the current fiscal year,
29:32
SPEAKER_00: we are looking at an even higher budget deficit,
29:35
SPEAKER_00: which means if we do not restructure our debt or if we do not cut the recurrent
29:40
SPEAKER_00: expenditure that we are looking at,
29:42
SPEAKER_00: most definitely we will have to borrow more.
29:45
SPEAKER_00: So I have said this time and again, it's...
29:48
SPEAKER_00: will effectively kick the can further down the road.
29:52
SPEAKER_00: And even if it will not be this year,
29:55
SPEAKER_00: the next fiscal year,
29:56
SPEAKER_00: or even 2025,
29:57
SPEAKER_00: 2026,
29:57
SPEAKER_00: we are looking at a debt crisis if the two options are not looked at,
30:03
SPEAKER_00: if we do not really work on the recurrent expenditure,
30:06
SPEAKER_00: which is basically the salaries and all those other bills that we have.
30:10
SPEAKER_00: And the issue on restructuring debt.
30:12
SPEAKER_03: Thank you.
30:13
SPEAKER_03: And just for context for our audience who are listening,
30:15
SPEAKER_03: the reason why for me the debt issue is especially important is because if you look
30:19
SPEAKER_03: at the programmed debt service costs that we have between July 2024 all the way
30:24
SPEAKER_03: through to around June 2028.
30:27
SPEAKER_03: For the next fiscal year, in interest alone, domestic and foreign interest, right?
30:32
SPEAKER_03: We're essentially looking at paying a trillion Kenyan shilling, just in interest, nothing else.
30:37
SPEAKER_03: We've got another 800 or so billion shillings in principal costs,
30:41
SPEAKER_03: essentially,
30:42
SPEAKER_03: deductions and so on and so forth.
30:43
SPEAKER_03: And if you essentially step back and say,
30:45
SPEAKER_03: okay,
30:45
SPEAKER_03: what does a figure for this current fiscal year in terms of total debt service look
30:49
SPEAKER_03: compared to where it's going to be in fiscal 27,
30:51
2028?
30:53
SPEAKER_03: It jumps by significant margin.
30:54
SPEAKER_03: You're essentially going from 1.7, 1.8 trillion shillings all the way to 2.6.
30:59
SPEAKER_03: trillion kenyan shillings and we all know we can all feel it we see it every time
31:03
SPEAKER_03: we go to the supermarket we see it and now companies are hiring we see it in the
31:06
SPEAKER_03: company results that are coming out the tax base simply cannot support at this
31:10
SPEAKER_03: point in time that sort of debt service so at some point we've got to figure out
31:14
SPEAKER_03: how to deal with it churchill i want to come to you on that exact same question and
31:17
SPEAKER_03: then i'll bring in dixon
31:18
SPEAKER_02: Thanks, Rama.
31:18
SPEAKER_02: To look at the debt service and just narrowing down on the interest payment,
31:22
SPEAKER_02: 1 trillion,
31:23
SPEAKER_02: that's like about 25% of the total budget.
31:26
SPEAKER_02: So it shows the less wiggle room that even the government has to play around.
31:29
SPEAKER_02: You heard the president yesterday talking about cuts around part of the recurrent expenditure,
31:34
SPEAKER_02: thus touching on the operations and maintenance.
31:36
SPEAKER_02: But I also feel that even if you start looking at the cuts and that operations and maintenance,
31:42
SPEAKER_02: it's on the top,
31:43
SPEAKER_02: it's on the hospitality.
31:44
SPEAKER_02: I feel that less that they can be able to get to offset this 302 billion shillings
31:50
SPEAKER_02: hold that has arisen by the fact that they'll not be able to pass this final bill.
31:55
SPEAKER_02: So it's quite a complicated issue.
31:58
SPEAKER_02: And even right now, I feel that even getting into the next financial year,
32:02
SPEAKER_02: the domestic borrowing will still do the heavy lifting and even you've seen it in
32:06
SPEAKER_02: the current financial year at the start we are looking at around 300 and 400
32:11
SPEAKER_02: billion shillings after supplementary one but I feel that after the lowering in the
32:17
SPEAKER_02: revenue after supplementary two
32:19
SPEAKER_02: There's a bit of some heavy lifting that has been done by the domestic financing.
32:23
SPEAKER_02: Just look at the last week's out of the blue is the capsules that came about.
32:28
SPEAKER_02: So even getting into the next financial year,
32:31
SPEAKER_02: and that's the tricky bit,
32:32
SPEAKER_02: because when the budget that was put out,
32:34
SPEAKER_02: domestic borrowing was roughly under 300 billion,
32:38
SPEAKER_02: thereabouts.
32:39
SPEAKER_02: And in terms of the fiscal deficit in the next financial year, at least there was some
32:44
SPEAKER_02: optimism that you're coming from around 6% this current financial year and getting
32:49
SPEAKER_02: into 3.4% in the next financial year.
32:52
SPEAKER_02: So you can argue that,
32:54
SPEAKER_02: yes,
32:54
SPEAKER_02: domestic borrowing in the next financial year is much,
32:57
SPEAKER_02: much lower than even in the current financial year.
33:00
SPEAKER_02: So most of the offsetting might be not even looking at expenditure side because I
33:05
SPEAKER_02: feel that unless now they start getting into development cuts,
33:09
SPEAKER_02: which has been the case over the last
33:14
SPEAKER_02: feels that domestic borrowing will now come in and flag the deficit that is arising
33:19
SPEAKER_02: from the finance bill.
33:20
SPEAKER_02: And the argument is that right now we're looking at even below $300 billion for the next financial year.
33:26
SPEAKER_02: Probably there's still some wiggle room to be able to accommodate an extra $300
33:30
SPEAKER_02: billion additional domestic borrowing cost.
33:32
SPEAKER_02: That's notwithstanding,
33:33
SPEAKER_02: you can look at the fiscal deficit going up to 4.5%,
33:36
SPEAKER_02: 5%,
33:36
SPEAKER_02: which is still much manageable on paper as it is.
33:41
SPEAKER_03: Let me just put a hypothetical scenario to you specifically,
33:45
SPEAKER_03: and then Dickson can weigh in on this when he comes on the mic.
33:47
SPEAKER_03: Right now,
33:48
SPEAKER_03: if you look at where private sector credit demand is at the moment,
33:51
SPEAKER_03: 6.6% I believe is the number that the central bank governor mentioned in his last
33:54
SPEAKER_03: MPC briefing.
33:56
SPEAKER_03: Private sector credit demand simply doesn't exist, right?
33:58
SPEAKER_03: It's essentially gone down the drain.
34:00
SPEAKER_03: If I'm government, if I'm treasury, I'd essentially say, look, I'm the only game in town here, right?
34:05
SPEAKER_03: You guys want returns, you want yields, you want essentially real returns.
34:08
SPEAKER_03: I'm the only game in town.
34:09
SPEAKER_03: But at the same time, I don't want to be paying 15% on T-bills.
34:13
SPEAKER_03: I don't want to be paying 17% on treasury bonds.
34:16
SPEAKER_03: It's simply too expensive.
34:17
SPEAKER_03: Is it feasible to have a scenario where treasury says,
34:20
SPEAKER_03: look,
34:21
SPEAKER_03: we can't accept stupid amounts of money in terms of the price that we're looking at here?
34:25
SPEAKER_03: We'll take the average of inflation for the last three months, plus 100 basis points, and that's it.
34:30
SPEAKER_03: That's a cap that we're taking.
34:31
SPEAKER_03: Would that still help in lowering the cost of domestic debt without breaking the market?
34:36
SPEAKER_02: Yeah,
34:36
SPEAKER_02: and that's sort of the hard place that the government is finding itself in,
34:42
SPEAKER_02: in the sense that trying to manage the rate in the domestic market,
34:45
SPEAKER_02: but by all indications,
34:47
SPEAKER_02: it's like domestic borrowing and...
34:49
SPEAKER_02: earlier, domestic rates will also continue going higher.
34:52
SPEAKER_02: So that's pretty much the kind of city balancing act that GeoPay needs to do.
34:57
SPEAKER_02: And that now ties into the starting point that Stella started with,
35:01
SPEAKER_02: that probably structuring might be the outlet that we may now see rates coming lower.
35:06
SPEAKER_02: And let's just see how they do it in Tanzania,
35:08
SPEAKER_02: whereby some of these coupon rates in the given financial year are set.
35:12
SPEAKER_02: So that's how they can now be able to manage
35:15
SPEAKER_02: Obviously,
35:16
SPEAKER_02: we can't see it playing out in the next financial year unless they do a whole
35:20
SPEAKER_02: overhaul of the current auction system to be able to accommodate that.
35:25
SPEAKER_02: Probably in that scenario,
35:26
SPEAKER_02: it could just affect your borrowing rather than what is the current coupon rates on
35:31
SPEAKER_02: the existing bonds that have been borrowed in the last three years.
35:34
SPEAKER_02: So that is the tricky situation that JK is finding itself.
35:38
SPEAKER_02: It may take up until three years so that you cannot be able to see more reasonable
35:42
SPEAKER_02: domestic debt servicing costs,
35:44
SPEAKER_02: but not in the near term.
35:45
SPEAKER_02: So probably fixing my timing.
35:48
SPEAKER_03: Indeed.
35:48
SPEAKER_03: Dixon Magasha, you know, our resident go-to guy on bonds and currencies.
35:53
SPEAKER_03: Please weigh in.
35:53
SPEAKER_03: How do you think we can fix this debt problem?
35:55
SPEAKER_03: Maybe to start with the last question.
35:56
SPEAKER_02: I think interest rates are usually a reflection of our market expectation of where they should go.
36:01
SPEAKER_02: see the future power of interest rates.
36:03
SPEAKER_02: And when markets are not convinced that rates are going to go lower, then they tend to bid higher.
36:08
SPEAKER_02: Anytime the market expects yields have topped and they're going to come down,
36:11
SPEAKER_02: then you'll see everyone rushing to buy bills because then when duration comes,
36:15
SPEAKER_02: basically,
36:16
SPEAKER_02: if you're holding bonds and yields come down,
36:18
SPEAKER_02: the bonds become more valuable because the interest rates and prices usually
36:22
SPEAKER_02: inverse to each other.
36:23
SPEAKER_02: I know that's a bit technical for most of the guys, but...
36:25
SPEAKER_02: Ideally,
36:26
SPEAKER_02: if you think D2C will be 10% next year and they're 17% right now,
36:30
SPEAKER_02: everyone would run to invest right now.
36:32
SPEAKER_02: And then once they're 10%,
36:33
SPEAKER_02: then you're earning an extra yield over and above what the market yield will be then.
36:37
SPEAKER_02: But if you think there's a chance they'll go to 20,
36:39
SPEAKER_02: then you'll be like,
36:40
SPEAKER_02: no,
36:40
SPEAKER_02: I'll just invest the least I can right now.
36:43
SPEAKER_02: Because if yields go higher, then if I'm a banker, I have to market my bonds at a loss.
36:48
SPEAKER_02: Or as an investor, you're like, I'm going to hold out and get a better yield in the future.
36:52
SPEAKER_02: So right now,
36:53
SPEAKER_02: the bidding behavior you are seeing in the market basically just reflects the fact
36:56
SPEAKER_02: that the market knows the government needs to borrow.
36:58
SPEAKER_02: And why do they need to borrow?
36:59
SPEAKER_02: It has to roll back to the spending side there.
37:02
SPEAKER_02: So if you've appropriated and we know you have to spend 3.2 trillion and you have
37:07
SPEAKER_02: to borrow X amount of money and we can see you have a huge target or rather a huge
37:10
SPEAKER_02: gap to your target,
37:11
SPEAKER_02: the market is fearful of that.
37:12
SPEAKER_02: So they're like,
37:13
SPEAKER_02: I think this guy will have to borrow more,
37:14
SPEAKER_02: so I'm going to hold out on my liquidity,
37:16
SPEAKER_02: try to get a better rate.
37:18
SPEAKER_02: And any time you seem to balance your books and things even out or seem that we're
37:22
SPEAKER_02: even out,
37:23
SPEAKER_02: then you will see market rush to invest,
37:25
SPEAKER_02: even if they have to borrow to invest that.
37:27
SPEAKER_03: Let me just interject for a bit there,
37:28
SPEAKER_03: Dixon,
37:29
SPEAKER_03: because I remember in the briefing that the governor had,
37:31
SPEAKER_03: his argument was if we really want to get a handle on public spending and the
37:35
SPEAKER_03: jitters that we're seeing in the market at the moment,
37:37
SPEAKER_03: we have to,
37:38
SPEAKER_03: and I'm paraphrasing what he said,
37:40
SPEAKER_03: we essentially need to start seeing PBL rates starting to go down,
37:44
SPEAKER_03: the rates in the bond market starting to go down.
37:47
SPEAKER_03: And there's this sort of,
37:47
SPEAKER_03: it looks like to me,
37:48
SPEAKER_03: there's an interesting chicken and egg question here,
37:50
SPEAKER_03: because on one hand,
37:51
SPEAKER_03: the market is saying,
37:52
SPEAKER_03: we know you have a liquidity problem.
37:53
SPEAKER_03: So if you're on this cash here,
37:56
SPEAKER_03: but at the same time,
37:57
SPEAKER_03: government is saying,
37:58
SPEAKER_03: guys,
37:58
SPEAKER_03: we're up against the wall here.
38:00
SPEAKER_03: So how do you want us to lower?
38:01
SPEAKER_02: No,
38:01
SPEAKER_02: you're missing a second part of that statement,
38:02
SPEAKER_02: because he did say that youth fiscal side is retained at 2.9% with a domestic
38:07
SPEAKER_02: borrowing target of,
38:08
SPEAKER_02: say,
38:08
SPEAKER_02: 300 billion.
38:09
SPEAKER_02: Then there was scope because the two are tied together.
38:12
SPEAKER_02: He was saying if the fiscal side consolidates,
38:15
SPEAKER_02: which means we borrow less,
38:17
SPEAKER_02: then based on that lower borrowing number,
38:19
SPEAKER_02: then he expects that market would come down.
38:22
SPEAKER_02: I think what is interesting now is that if I could roll back to what has happened
38:26
SPEAKER_02: with this finance being thrown out,
38:28
SPEAKER_02: the issue then what market is seeing is that you've removed the revenue raising measures,
38:32
SPEAKER_02: but the expenditure side has not been addressed.
38:34
SPEAKER_02: So you've seen the IFB bond selling off,
38:36
SPEAKER_02: you've seen the Euro bond selling off,
38:38
SPEAKER_02: because ideally people are saying,
38:39
SPEAKER_02: we think your fiscal deficit is going to be larger.
38:42
SPEAKER_02: And that means that you will not consolidate your borrowing.
38:44
SPEAKER_02: And that means that your yields will go higher.
38:46
SPEAKER_02: So we have to roll back.
38:47
SPEAKER_02: And I think,
38:48
SPEAKER_02: I am not a lawyer,
38:50
SPEAKER_02: but I would say the first thing we need to do is the appropriations bill needs to
38:53
SPEAKER_02: be rolled back to the committee before even the finance bill.
38:56
SPEAKER_02: And then from the appropriations bill, we look at expenditure side.
38:59
SPEAKER_02: We cut all the expenses that are not funded.
39:01
SPEAKER_02: And I know this is very emotive for the public.
39:04
SPEAKER_02: So they have to go back and remove what everyone considers waste and can be postponed.
39:08
SPEAKER_02: Once you have maybe a lesser budget number that would seemingly be able to be
39:13
SPEAKER_02: funded even without tax increases or whatever it is on this side,
39:16
SPEAKER_02: that will boost the confidence in the market that,
39:18
SPEAKER_02: oh,
39:18
SPEAKER_02: you've cut your deficit now.
39:20
SPEAKER_02: It looks like you'll only borrow 200 billion.
39:21
SPEAKER_02: We think that can be naturally acquired through a nominal rise in inflation rate,
39:26
SPEAKER_02: which boosts us revenue or nominal GDP growth.
39:28
SPEAKER_02: which again might boost up revenues if you think that number is 200 billion and
39:32
SPEAKER_02: then then you have a deficit of that 200 billion and with the capital domestic
39:36
SPEAKER_02: borrowing number then that means that market might scrum might start thinking we
39:41
SPEAKER_02: were scrambled by the bills or even as you start your borrowing program eventually
39:45
SPEAKER_02: because you're borrowing a small number you'll hit your annual borrowing target
39:48
SPEAKER_02: early enough and once you meet that you retain that deficit number without moving
39:53
SPEAKER_02: the whole cover and you'll come down substantially lower all the way to where the
39:56
SPEAKER_02: mpc bill is
39:57
SPEAKER_03: Now that requires a lot of practice.
39:59
SPEAKER_03: So the rate problem,
40:00
SPEAKER_03: if I understand you correctly,
40:01
SPEAKER_03: you're saying,
40:01
SPEAKER_03: look,
40:02
SPEAKER_03: the only way to credibly say,
40:04
SPEAKER_03: look,
40:04
SPEAKER_03: we're going to essentially create conditions where the market will say,
40:06
SPEAKER_03: okay,
40:06
SPEAKER_03: I'm going to lend to you at 17,
40:08
18%.
40:08
SPEAKER_03: I'm going to accept lending to you at 7 or 8% is if you see a credible spending plan,
40:14
SPEAKER_03: a credible appropriations bill.
40:16
SPEAKER_02: Yes.
40:16
SPEAKER_03: That essentially has a reasonable,
40:19
SPEAKER_03: you say,
40:19
SPEAKER_03: we're going to hit a fiscal deficit of 2.9% or 3.3%,
40:24
SPEAKER_03: but with a spending plan that is much,
40:26
SPEAKER_03: much smaller on the recurrence and the capital spending side than what we have now.
40:30
SPEAKER_02: And now the challenge is, it looks like we might not be able to raise taxes again.
40:34
SPEAKER_02: And this is, if you look at the ratings, I just see today where there is heat release.
40:37
SPEAKER_02: Morgan Stanley,
40:38
SPEAKER_02: everyone who's come out and given a note today,
40:40
SPEAKER_02: they are saying,
40:40
SPEAKER_02: look,
40:41
SPEAKER_02: given the special issues that have arisen,
40:42
SPEAKER_02: it might seem that between now and the next election,
40:45
SPEAKER_02: we may not ever be able to raise any other taxes.
40:47
SPEAKER_02: So if you have that scenario, what does that mean?
40:49
SPEAKER_02: It means then they have to go and look at, for instance... Or...
40:53
SPEAKER_02: You find somehow a way to convince the public to allow some taxes to be raised such
40:57
SPEAKER_02: that you have a balanced budget.
40:58
SPEAKER_02: I've heard guys say the bill is dead.
41:00
SPEAKER_02: I don't really think the bill is dead.
41:01
SPEAKER_02: I think the bill can go to the committee.
41:03
SPEAKER_02: The committee can decide to call the public,
41:05
SPEAKER_02: whether it's civil society,
41:07
SPEAKER_02: whether it's think tanks,
41:07
SPEAKER_02: whether it's you chaps.
41:08
SPEAKER_02: Everyone to come and sit down and say, OK, fine, here's a propitious bill.
41:12
SPEAKER_02: There are some things you like in there.
41:13
SPEAKER_02: There are some things you don't like.
41:14
SPEAKER_02: You can remove them.
41:15
SPEAKER_02: Once you don't like, once you have that number, we come and look at the finance bill side.
41:19
SPEAKER_02: We say, okay, fine.
41:20
SPEAKER_02: If we keep this, we have to fund this.
41:22
SPEAKER_02: Where do we think we could raise taxes?
41:24
SPEAKER_02: Or if you can't raise taxes at all, then what do we draw?
41:27
SPEAKER_02: Because ultimately, it might be sacrifice.
41:29
SPEAKER_02: It might be that you might not do a full three-primer education or a half-primer education,
41:33
SPEAKER_02: if that comes to that,
41:34
SPEAKER_02: or you can't build roads for a few years,
41:35
SPEAKER_02: or you have to cut education.
41:37
SPEAKER_02: But you have to come down with a point that says, this is the kind of
41:40
SPEAKER_02: cash they can spend.
41:41
SPEAKER_02: And since you've told me I can't raise taxes, then I have to leave it there.
41:44
SPEAKER_02: Eventually that by itself might give you issues down the line because sometimes
41:47
SPEAKER_02: taxation goes beyond just financing bills.
41:50
SPEAKER_02: Sometimes it does do other objects like trying to reduce inequality and things like that.
41:54
SPEAKER_02: Because if you say you're going to pay people 18% in real yields,
41:58
SPEAKER_02: Because we keep forgetting that this money we keep talking that we owe someone is
42:02
SPEAKER_02: not owed to aliens,
42:03
SPEAKER_02: it's owed to other Kenyans.
42:04
SPEAKER_02: So there are Kenyans who are earning 12% real yields on their bills,
42:08
SPEAKER_02: so people who are happily earning that yield,
42:10
SPEAKER_02: probably maybe they're at a point in their life where they don't really spend the money.
42:14
SPEAKER_02: They keep rolling that over.
42:15
SPEAKER_02: And the same issue we've seen in some tax cuts,
42:17
SPEAKER_02: say like in America,
42:17
SPEAKER_02: where you should cut taxes to some section of the society that's up there.
42:21
SPEAKER_02: What they'll do is that they'll just take those taxes and reinvest back buying assets,
42:25
SPEAKER_02: whether it's land,
42:25
SPEAKER_02: property,
42:26
SPEAKER_02: whatever,
42:26
SPEAKER_02: other than spending in the economy.
42:27
SPEAKER_02: So the stimulus never comes back.
42:29
SPEAKER_02: And that widens inequality.
42:31
SPEAKER_02: So ultimately, you have to decide which taxes you have to raise.
42:34
SPEAKER_02: And that, again, that has to be done by consensus because you don't want to be taxing capital.
42:37
SPEAKER_02: You don't want to be taxing investments.
42:39
SPEAKER_02: You don't want to be taxing the guys at the bottom of the rung.
42:41
SPEAKER_02: But this is a discussion that can be had.
42:43
SPEAKER_02: And if it's being had by an honest orbiter,
42:45
SPEAKER_02: who is not invested because most people who will be sitting in parliament obviously
42:49
SPEAKER_02: are invested because they are on the 1%,
42:50
SPEAKER_02: including most of us in this call.
42:53
SPEAKER_02: We might not be willing to push those punitive taxes that are tackled.
42:56
SPEAKER_02: But admittedly,
42:57
SPEAKER_02: we have to understand that the one point,
42:58
SPEAKER_02: if you look at the budget,
42:59
SPEAKER_02: the 40% has been paid as interest.
43:01
SPEAKER_02: is going to a few people, probably less than 3% for the economy.
43:05
SPEAKER_02: And which is why,
43:06
SPEAKER_02: you know,
43:06
SPEAKER_02: the government is struggling to get taxes like the motor vehicle tax,
43:09
SPEAKER_02: because it looks like a wealth tax,
43:11
SPEAKER_02: but probably shouldn't go there because then there's a whole portion of the society
43:14
SPEAKER_02: that uses the cars for income generation.
43:16
SPEAKER_02: So it's not really a wealth tax.
43:18
SPEAKER_02: But you can see they're looking to other direction.
43:21
SPEAKER_02: But admittedly,
43:22
SPEAKER_02: I think there's conflict of issues by parliament itself in terms of do they want to
43:25
SPEAKER_02: tax themselves?
43:25
SPEAKER_02: Because they are part of that particular subset of population.
43:29
SPEAKER_02: Once you agree on that number,
43:31
SPEAKER_02: then you come back and say,
43:32
SPEAKER_02: we have agreed to cut this spending,
43:34
SPEAKER_02: we can finance that.
43:35
SPEAKER_02: Markets look at your number, it's credible, ballast.
43:37
SPEAKER_02: Interests will come down.
43:38
SPEAKER_03: There's an interesting question on that front, actually, with respect to the finance bill.
43:42
SPEAKER_03: Wycliffe, since you're still on the call, I want to put this to you.
43:44
SPEAKER_03: There was a question that was put to us on Twitter.
43:47
SPEAKER_03: This was from Beth Moruginderito,
43:49
SPEAKER_03: and she's essentially arguing,
43:52
SPEAKER_03: is there any form of public participation for withdrawal from the consolidated fund?
43:56
SPEAKER_03: Correct.
43:57
SPEAKER_03: Technically,
43:57
SPEAKER_03: yes,
43:58
SPEAKER_03: considering the fact that for you to withdraw cash from the consolidated fund for
44:02
SPEAKER_03: debt service through the appropriations bill,
44:04
SPEAKER_03: the budget committee also does have hearings of its own.
44:06
SPEAKER_03: But there's something a bit more detailed here.
44:08
SPEAKER_03: Quote,
44:09
SPEAKER_03: since the president's memorandum is to delete all the clauses,
44:11
SPEAKER_03: does Article 115 to B or the Constitution pass a second time as is not an option?
44:17
SPEAKER_03: So Article 115 to A.
44:20
SPEAKER_03: amend as per the directions essentially from the head of state means the bill is
44:24
SPEAKER_03: then passed as a blank,
44:25
SPEAKER_03: ascended to as a blank,
44:27
SPEAKER_03: and a new bill,
44:28
SPEAKER_03: a new 2024 finance bill is then introduced with amendments.
44:33
SPEAKER_03: If that happens, what are the legal complications that arise?
44:36
SPEAKER_01: An interesting question,
44:37
SPEAKER_01: if you ask me,
44:39
SPEAKER_01: I think the two questions that arise from that are,
44:43
SPEAKER_01: one,
44:43
SPEAKER_01: can we have two finance acts for the same financial period?
44:48
SPEAKER_01: My simple answer would be no.
44:50
SPEAKER_01: Number two is, do the president's reservations amount to deleting the finance bill in its entirety?
44:59
SPEAKER_01: That would be the interesting one that we need to discuss.
45:01
SPEAKER_01: But let me just go through the article referred to Article 1.
45:05
SPEAKER_01: If we go by what the president is proposing,
45:08
SPEAKER_01: then I do not think that in the strict sense of the term,
45:12
SPEAKER_01: we are going to send to a blank bill.
45:16
SPEAKER_01: As I said earlier, the bill has various components.
45:19
SPEAKER_01: And I think Mr.
45:20
SPEAKER_01: Hira also made very important observations that the amendments proposed are by
45:25
SPEAKER_01: deleting provisions of the bill.
45:27
SPEAKER_01: That does not mean deleting the entire bill.
45:30
SPEAKER_01: In my mind,
45:31
SPEAKER_01: I'm not persuaded the president indeed has power to say the bill should be
45:36
SPEAKER_01: withdrawn because that is not what the law contemplates.
45:39
SPEAKER_01: The law contemplates that he should make his reservations concerning the bill.
45:43
SPEAKER_01: And that do not, in my view, include withdrawing the bill.
45:48
SPEAKER_01: And that is exactly why the speaker has today referred it back to the House for
45:52
SPEAKER_01: consideration along the terms proposed by the president.
45:55
SPEAKER_01: Now,
45:56
SPEAKER_01: what I think will happen is that then the House will have to consider that bill
46:01
SPEAKER_01: with the proposed amendments in terms of being deleted the provisions that are contentious.
46:07
SPEAKER_01: But Rama, interestingly, we would still have the title of the bill remaining.
46:11
SPEAKER_01: We would still have certain provisions,
46:14
SPEAKER_01: including the memorandum of reasons remaining in the bill,
46:17
SPEAKER_01: which means if the bill is passed and it would be interesting how parliament would
46:21
SPEAKER_01: debate amendments by deleting,
46:23
SPEAKER_01: but we wait to see.
46:24
SPEAKER_01: But if the bill is passed and say it becomes Finance Act number 27 of 2024,
46:31
SPEAKER_01: then that means we cannot have another Finance Act enacted for the same period.
46:36
SPEAKER_01: It even gets more interesting if you consider provisions of the Public Finance
46:40
SPEAKER_01: Management Act,
46:41
SPEAKER_01: which requires us to enact a Finance Act before the 30th of June.
46:48
SPEAKER_01: And as is, we are currently going to offend that provision of the law.
46:52
SPEAKER_01: And I think if we apply our minds correctly to that act,
46:55
SPEAKER_01: then we cannot have two concurrent acts subsisting for the same financial period in
47:01
SPEAKER_01: terms of now just saying,
47:02
SPEAKER_01: let's pass this as the president has proposed.
47:04
SPEAKER_01: And then now we start debating another.
47:06
SPEAKER_01: In fact,
47:07
SPEAKER_01: Rama,
47:07
SPEAKER_01: if we pass this as the president has proposed,
47:10
SPEAKER_01: then we would have complied with the provisions of Article 115 in full.
47:14
SPEAKER_01: And there would be no reason whatsoever to again then now start another process of enacting a fresh act.
47:22
SPEAKER_01: The issue then will go back to what our finance experts are telling us.
47:25
SPEAKER_01: Then how does the government exist or wriggle around the circumstances with what we have?
47:31
SPEAKER_01: What are the budget cuts that we need to observe?
47:33
SPEAKER_01: You may have noted some of the proposals being made by the protesters,
47:37
SPEAKER_01: of course,
47:38
SPEAKER_01: in not a very coordinated fashion.
47:40
SPEAKER_01: Is, for example, parliament to take a pay cut?
47:42
SPEAKER_01: from what they are earning to around 200,000.
47:45
SPEAKER_01: So can some of these strategies and maybe plugging on government accesses enable us
47:51
SPEAKER_01: retain more money to be spent?
47:54
SPEAKER_01: So these are the issues that now we have to think about in terms of then how do we go about this?
47:59
SPEAKER_01: The other interesting bit,
48:01
SPEAKER_01: as I finish off on that point,
48:02
SPEAKER_01: is that there is the real possibility that then we could see amendments being done
48:07
SPEAKER_01: to individual acts.
48:09
SPEAKER_01: So,
48:09
SPEAKER_01: for example,
48:10
SPEAKER_01: if Parliament was to introduce an amendment to the VAT Act sometime in September of
48:15
SPEAKER_01: this year,
48:15
SPEAKER_01: We would have to deal with the legality of those amendments at that point in terms
48:19
SPEAKER_01: of is it touching on what otherwise would be processed under Article 114 as a money bill?
48:25
SPEAKER_01: Then what is the implication of that?
48:27
SPEAKER_01: We've seen,
48:27
SPEAKER_01: for example,
48:28
SPEAKER_01: currently,
48:29
SPEAKER_01: I think in the next week or so,
48:31
SPEAKER_01: the amendments to the SHIF or the enactment of the SHIF is coming into force with
48:36
SPEAKER_01: serious ramifications on,
48:37
SPEAKER_01: for example,
48:38
SPEAKER_01: the pay slip in terms of the deduction there.
48:40
SPEAKER_01: The Affordable Housing Act was enacted as a standalone piece of legislation.
48:45
SPEAKER_01: whose effect is to raise money at this point in time, of course, for a specific purpose.
48:50
SPEAKER_01: But as we speak, we do not know where that money is.
48:53
SPEAKER_01: We suspect probably it's in the consolidated fund for which,
48:56
SPEAKER_01: as you've correctly noted,
48:57
SPEAKER_01: if it was to be spent,
48:59
SPEAKER_01: then it would require that level of public participation.
49:02
SPEAKER_01: But then we would now end up with the other issues about is it legal to withdraw
49:07
SPEAKER_01: money from that fund to be applied for a purpose for which it was not intended?
49:11
SPEAKER_01: I think then that becomes the important question that then can we look at other ways,
49:16
SPEAKER_01: apart from enacting another finance act that would sit side by side with an already
49:23
SPEAKER_01: enacted act,
49:23
SPEAKER_01: which in my view would be unconstitutional and illegal,
49:27
SPEAKER_01: to try and see what we do about our public finance.
49:31
SPEAKER_01: Thank you, Rama.
49:32
SPEAKER_03: Indeed, many interesting questions that arise from this entire affair.
49:35
SPEAKER_03: I want to move the question onto that, the question of spending cuts.
49:38
SPEAKER_03: And Barbara Barungi probably puts this better than I could.
49:42
SPEAKER_03: This is an opportune time, she says, for deep expenditure cuts.
49:45
SPEAKER_03: A serious team can sit down, review all MDA budgets and cut recurrent expenditure and block leakages.
49:51
SPEAKER_03: But is there any will to do this?
49:54
SPEAKER_03: I want to bring it down to something a little more narrow because some of the
49:56
SPEAKER_03: spending items that we have,
49:58
SPEAKER_03: debt,
49:58
SPEAKER_03: for example,
49:59
SPEAKER_03: that's essentially a fixed number.
50:00
SPEAKER_03: We've got a trillion shillings in interest costs that we have to essentially cover.
50:04
SPEAKER_03: There's not much wiggle room there.
50:06
SPEAKER_03: But based on the data that we see, where's the room to cut?
50:09
SPEAKER_03: Stella, I want to start with you, then I'll go to Churchill.
50:12
SPEAKER_00: Thanks Rama.
50:13
SPEAKER_00: I will insist on the bit on recurrent expenditure because historically and it has
50:19
SPEAKER_00: been a trend that the government always focuses more on the development side.
50:25
SPEAKER_00: And we have consistently seen the budget channel a very little amount of money.
50:30
SPEAKER_00: towards development.
50:31
SPEAKER_00: For example,
50:32
SPEAKER_00: we've seen between 10% and 15% for the current fiscal year,
50:36
SPEAKER_00: and a lot of the money goes into recurrent expenditure and debt servicing,
50:40
SPEAKER_00: as you've mentioned.
50:41
SPEAKER_00: For me, in my view, where we should cut and where we should look at is the bid on recurrent expenditure.
50:47
SPEAKER_00: I assume or presume that most of you have seen that article or NYPET that
50:53
SPEAKER_00: showed the multiple of what our MPs or government officials get in terms of payment as compared to GDP.
51:01
SPEAKER_00: And you've seen that Kenya is up there with a multiple of 97.
51:05
SPEAKER_00: So I see their opportunity.
51:08
SPEAKER_00: And even the president himself mentioned that there will be cuts with regards to
51:13
SPEAKER_00: travel expenditure,
51:14
SPEAKER_00: provisions of the houses that they've mentioned they're about.
51:18
SPEAKER_00: And I don't think that whatever he mentioned will be a very significant bit of the recurrent expenditure.
51:25
SPEAKER_00: So more work has to be done on that end or in that space with debt.
51:30
SPEAKER_00: I only see the bid on restructuring because, again, as they say, debt is a fast charge.
51:36
SPEAKER_00: We have to, this is a have to, so only restructuring will work for us.
51:41
SPEAKER_00: And the bid on restructuring,
51:42
SPEAKER_00: again,
51:42
SPEAKER_00: is another whole topic because looking at the schedule of the debt redemption for
51:48
SPEAKER_00: the next fiscal year,
51:49
SPEAKER_00: that is fiscal year 2024-2025,
51:52
SPEAKER_00: You get to see that most of the principal redemption goes to the Exim Bank of China,
51:59
SPEAKER_00: which means that this is a commercial debt or a commercial loan.
52:03
SPEAKER_00: So with that, it may be challenging to restructure.
52:07
SPEAKER_00: I do not have the formal guidelines on how China restructures its debt.
52:11
SPEAKER_00: with African countries or other countries that they have lent money to.
52:14
SPEAKER_00: So we also have other debts that are maturing and the huge amounts are for
52:20
SPEAKER_00: syndicated loans and the likes of World Bank multilateral loans.
52:24
SPEAKER_00: So I think around there we can work something out and restructure the debt to ease
52:30
SPEAKER_00: the pressure on repayment and the pressure on the budget that we have currently.
52:34
SPEAKER_03: Indeed.
52:34
SPEAKER_03: Churchill,
52:35
SPEAKER_03: from your perspective,
52:36
SPEAKER_03: and I'm going to bring in Nikhil Hira here before I ask him a separate question
52:39
SPEAKER_03: around tax cuts.
52:41
SPEAKER_03: What can we cut based on the spending plans and the appropriation bills that we've seen?
52:45
SPEAKER_02: Thanks.
52:46
SPEAKER_02: Before I get into the question, the same on your point that you threw to Nixon.
52:52
SPEAKER_02: around what actually will happen.
52:54
SPEAKER_02: I remember that the speech that the president gave yesterday,
52:57
SPEAKER_02: he did not mention anything around appropriation bill.
53:00
SPEAKER_02: So,
53:00
SPEAKER_02: in this case,
53:01
SPEAKER_02: and this is my view,
53:02
SPEAKER_02: we should expect something to the appropriation bill before next week,
53:05
SPEAKER_02: which is the type of the FY25,
53:09
SPEAKER_02: 2014-25.
53:09
SPEAKER_02: And it should tackle back also on this issue.
53:12
SPEAKER_02: Remember last week when we gave that advice,
53:14
SPEAKER_02: the impact of passing the finance bill with the amendment,
53:17
SPEAKER_02: and then they costed it at around $200 billion.
53:20
SPEAKER_02: And then they gave two numbers,
53:21
SPEAKER_02: I think in the tune of $107.3 billion,
53:24
SPEAKER_02: the amount that needs to be cut,
53:26
SPEAKER_02: needs to be able to accommodate the finance bill as it was then during the second
53:31
SPEAKER_02: reading with the amendment that had been proposed by the Finance Committee.
53:34
SPEAKER_02: So that, those who are, that
53:36
SPEAKER_02: So I've convinced people that even the appropriation bill that was passed on
53:41
SPEAKER_02: Tuesday would have also led to us some downward revision of sorts.
53:46
SPEAKER_02: But even the second reading and also the committee stage and before it was passed
53:51
SPEAKER_02: did not convince me that there were any amendments that were done on the
53:54
SPEAKER_02: appropriation bill.
53:56
SPEAKER_02: We have not seen even the budget committee report on the appropriation.
53:59
SPEAKER_02: appropriation bill before the second reading stage happened for us to see any
54:04
SPEAKER_02: initiatives as to the actual movement that was made on the appropriation bill.
54:08
SPEAKER_02: So as it is,
54:09
SPEAKER_02: I still expect that probably we should see the president assenting appropriation
54:14
SPEAKER_02: bill as it is.
54:15
SPEAKER_02: But now the correction will come with the supplementary budget.
54:18
SPEAKER_02: And that's where what are the areas of potential cuts that we should see.
54:23
SPEAKER_02: If I may take you back, what
54:24
SPEAKER_02: have been proposed to the national government as it is around 2.39 trillion with
54:29
SPEAKER_02: the appropriation bill as what is in the public domain.
54:33
SPEAKER_02: But remember, at some point in the budget cycle, this budget cycle started all the way back last year.
54:38
SPEAKER_02: At some point after the budget policy statement that was stumbled in fundamental
54:43
SPEAKER_02: around mid-February,
54:44
SPEAKER_02: we're looking at 2.5 trillion.
54:46
SPEAKER_02: And then the budget committee put a ceiling at 2.56 trillion.
54:50
SPEAKER_02: And then around April,
54:52
SPEAKER_02: when Roto was in Ghana,
54:53
SPEAKER_02: he hinted that there could be some wide reduction of budget cuts on the budget to
54:58
SPEAKER_02: the national government.
54:59
SPEAKER_02: And that now led to around 200 billion.
55:02
SPEAKER_02: The budget estimate that national treasury table end of April affected this 200
55:07
SPEAKER_02: billion cuts on spending to the national government.
55:10
SPEAKER_02: But most of the cuts were on the development spending and that
55:15
SPEAKER_02: ties into time and again even if you've got the supplementary budgets that have
55:18
SPEAKER_02: been passed in the current financial year most of the cards have been affected on
55:23
SPEAKER_02: development spending rather than recurrent spending and that sort of speaks to even
55:28
SPEAKER_02: the president's speeches and they weren't hinted around travel sensors need to be
55:33
SPEAKER_02: cut hospitality the purchase of motor vehicles all that is around rent
55:39
SPEAKER_02: expenditure.
55:40
SPEAKER_02: So I think,
55:40
SPEAKER_02: by and large,
55:41
SPEAKER_02: we should expect that in the event the monetary budget is stabled,
55:45
SPEAKER_02: and they mentioned there's some urgency around the thing of the monetary budget,
55:50
SPEAKER_02: probably it should be around recurrent spending.
55:52
SPEAKER_02: About the urgency, remember that you're also within an IMF program.
55:55
SPEAKER_02: In the seventh review, the staff level agreement came three weeks back.
55:59
SPEAKER_02: And potentially, we are expecting good approval by mid-July based on the recent trends that you've seen.
56:06
SPEAKER_02: So that means that we should expect some urgency of sorts.
56:10
SPEAKER_02: And probably by the time IMF is going to approve the seventh review,
56:13
SPEAKER_02: Parliament may not have come back from their distraught success.
56:17
SPEAKER_02: But more likely than not,
56:18
SPEAKER_02: probably we need to see some groundwork happening in the next two or three weeks
56:22
SPEAKER_02: before Parliament comes in.
56:37
SPEAKER_03: Indeed, because unless he actually delivers, it's one thing to say, I want to make spending cuts.
56:41
SPEAKER_03: But until we actually see a plan to do that,
56:43
SPEAKER_03: a credible plan to meaningfully reduce recurrent expenditure,
56:46
SPEAKER_03: it really doesn't bear any water.
56:49
SPEAKER_03: Nikhil,
56:49
SPEAKER_03: I want to come to you on a question around laying the foundations for future growths,
56:53
SPEAKER_03: because the pattern over the last decade has been to increase tax X,
56:57
SPEAKER_03: increase tax Y.
56:58
SPEAKER_03: So for example,
56:58
SPEAKER_03: X is duty on mobile money transactions.
57:02
SPEAKER_03: We started at around 10%.
57:03
SPEAKER_03: We're at 15% now.
57:04
SPEAKER_03: There's a proposal to move it all the way up to 20%.
57:07
SPEAKER_03: And the argument that Treasury probably could have
57:09
SPEAKER_03: been making is,
57:10
SPEAKER_03: yeah,
57:10
SPEAKER_03: we've raised it,
57:10
SPEAKER_03: but it's,
57:11
SPEAKER_03: no,
57:11
SPEAKER_03: we're not seeing a reduction in the number of transactions that people are using
57:14
SPEAKER_03: mobile money for.
57:15
SPEAKER_03: But tax cuts, if well-planned, targeted, can often have extraordinarily powerful impact.
57:20
SPEAKER_03: And the one example that I like using is what Amos Kimonya did in
57:25
SPEAKER_03: In 2008,
57:25
SPEAKER_03: with respect to small displacement motorcycles,
57:27
SPEAKER_03: if he had not convinced Parliament to approve the tax cuts that he proposed then,
57:31
SPEAKER_03: that made it much,
57:32
SPEAKER_03: much cheaper for people to be able to buy motorcycles for as little as 100,000
57:36
SPEAKER_03: shillings from a million supermarkets.
57:38
SPEAKER_03: You could walk into an akumat and find a bike from TBS or a Chinese manufacturer.
57:42
SPEAKER_03: Today's border revolution,
57:44
SPEAKER_03: the ability of companies like Uber and Glovo to essentially have last mile logistics,
57:49
SPEAKER_03: none of that would exist without that tax cut.
57:51
SPEAKER_03: So if you're trying to lay the foundation for growth over the medium term,
57:54
SPEAKER_03: where are the places we could cut taxes in order to essentially give the public a
57:58
SPEAKER_03: bit of a reprieve,
57:59
SPEAKER_03: to essentially say,
57:59
SPEAKER_03: look,
58:00
SPEAKER_03: we're going to reduce the amount we're taking from every individual person,
58:02
SPEAKER_03: but the net growth in output will help to essentially cover for whatever net loss
58:06
SPEAKER_03: we're looking at.
58:07
SPEAKER_03: Yeah, thanks very much.
58:08
SPEAKER_03: Just before I answer that question, this phony one about expenditure.
58:12
SPEAKER_03: Like any household, I have a certain amount of income.
58:15
SPEAKER_03: I have a certain amount of expenses.
58:16
SPEAKER_03: Unless I'm prepared to borrow,
58:18
SPEAKER_03: which obviously the government was,
58:19
SPEAKER_03: unless I'm prepared to borrow,
58:20
SPEAKER_03: I'm going to make sure that revenue exceeds expenditure.
58:22
SPEAKER_03: Most countries are not in that position.
58:24
SPEAKER_03: Kenya certainly isn't.
58:25
SPEAKER_03: We're spending much more than we're earning in tax revenues.
58:28
SPEAKER_03: 60 to 70% of what we collect
58:32
SPEAKER_03: is going and servicing the debt.
58:33
SPEAKER_03: So the debt is astronomical in a way.
58:36
SPEAKER_03: There's nothing wrong with debt,
58:37
SPEAKER_03: provided A,
58:39
SPEAKER_03: you use it for the purpose that it was designed,
58:41
SPEAKER_03: which should really be the development side,
58:44
SPEAKER_03: which Stacey said we'd reduce quite a lot.
58:47
SPEAKER_03: And B, we have to be able to service it.
58:49
SPEAKER_03: It's when you can't service it and you don't have the cash flows to do that,
58:52
SPEAKER_03: that you get the IMF involved and the World Bank involved and so forth.
58:56
SPEAKER_03: But I've heard many a government say, we will cut expenditure.
59:00
SPEAKER_03: And I've yet to see one that's actually achieved that.
59:02
SPEAKER_03: But this time,
59:03
SPEAKER_03: if we don't have a finance and we've talked about that already,
59:07
SPEAKER_03: then we have to cut recurrent expenditure.
59:09
SPEAKER_03: And expenditure that is absolutely not needed has to be slashed.
59:12
SPEAKER_03: That's the only way we're going to get some way towards balancing our books.
59:16
SPEAKER_03: We're never going to balance them completely.
59:18
SPEAKER_03: But we've got to go some way toward doing that.
59:20
SPEAKER_03: On the question of tax reductions,
59:22
SPEAKER_03: for many years I have said that if you lower the tax rates,
59:25
SPEAKER_03: you're going to find that people are more likely to comply.
59:28
SPEAKER_03: It is much cheaper to comply at a lower rate and avoid excessive penalties and
59:33
SPEAKER_03: indeed perhaps a spell in committee prison.
59:35
SPEAKER_03: But reduce the rates and you'll see a raise in tax revenue.
59:38
SPEAKER_03: It's happened in many places around the world.
59:40
SPEAKER_03: Just take our own country.
59:41
SPEAKER_03: In 1992, 1993, 1994, our tax rate, top tax rate, was 65%.
59:47
SPEAKER_03: I know most of you Gen Zs on here will not believe that,
59:49
SPEAKER_03: but we were paying 65% on incomes above a certain level.
59:53
SPEAKER_03: It was reduced down to 30%.
59:55
SPEAKER_03: Go and have a look at a chart of collections between 94 and about 2000,
1:00:00
SPEAKER_03: and you'll see it's a 45-degree line going up because the tax rates were brought down.
1:00:05
SPEAKER_03: On the converse, when you put tax rates up,
1:00:07
SPEAKER_03: And there's a prime example here.
1:00:09
SPEAKER_03: And if you remember Senator K, excise duty went up, killed it.
1:00:13
SPEAKER_03: Why did we have Senator K in the first place?
1:00:15
SPEAKER_03: It was to prevent people from going and having the illicit brew.
1:00:18
SPEAKER_03: So it had a health purpose and it was selling well.
1:00:20
SPEAKER_03: So the government said, all right, let's increase excise duty.
1:00:23
SPEAKER_03: Net of Fed sales dropped.
1:00:24
SPEAKER_03: You lost excise duty.
1:00:25
SPEAKER_03: You lost VAT.
1:00:26
SPEAKER_03: You lost corporate tax.
1:00:27
SPEAKER_03: You potentially lost pay as you earned because people were laid off.
1:00:30
SPEAKER_03: Increasing the rates doesn't necessarily mean that you're going to get more in the coffers.
1:00:35
SPEAKER_03: For me,
1:00:36
SPEAKER_03: the other thing that is confusing us today,
1:00:39
SPEAKER_03: even tax practitioners,
1:00:41
SPEAKER_03: is that we are having so many changes in taxes.
1:00:43
SPEAKER_03: Just looking at since the government has come in,
1:00:46
SPEAKER_03: FA 23,
1:00:47
SPEAKER_03: Finance Bill 24,
1:00:47
SPEAKER_03: the number of new taxes that have come in has made it a very uncertain system for us.
1:00:54
SPEAKER_03: Any good tax system has got to be clear, got to be unambiguous.
1:00:58
SPEAKER_03: It got to be understandable.
1:01:00
SPEAKER_03: I remember when I was a young boy starting my tax career,
1:01:03
SPEAKER_03: there were four C's and I can't remember all the four C's are now.
1:01:05
SPEAKER_03: But the point is that the system has to be such that it is easy to comply with.
1:01:10
SPEAKER_03: The minute you make it difficult to comply with and the minute you keep changing taxes,
1:01:14
SPEAKER_03: oh,
1:01:14
SPEAKER_03: this is a good idea,
1:01:15
SPEAKER_03: so I'll add it here.
1:01:16
SPEAKER_03: And the next year you say, no, it wasn't such a good idea, I'll take it out.
1:01:19
SPEAKER_03: You're just confusing the taxpayer.
1:01:21
SPEAKER_03: And higher rates of tax are going to move us back into a black economy.
1:01:25
SPEAKER_03: So essentially,
1:01:26
SPEAKER_03: in some ways,
1:01:26
SPEAKER_03: this is a prime opportunity for Parliament to say,
1:01:29
SPEAKER_03: okay,
1:01:29
SPEAKER_03: cool,
1:01:29
SPEAKER_03: we can try and kill two birds with one stone.
1:01:32
SPEAKER_03: Do all these things that we've spoken about for many years.
1:01:35
SPEAKER_03: Simplify the tax debt.
1:01:37
SPEAKER_03: And not just for the technical benefits of trying to raise revenues,
1:01:40
SPEAKER_03: but also simply saying to taxpayers,
1:01:42
SPEAKER_03: yeah,
1:01:42
SPEAKER_03: we hear you.
1:01:43
SPEAKER_03: We understand times are tough.
1:01:45
SPEAKER_03: You don't get a 10% decline in real incomes in the last five years.
1:01:48
SPEAKER_03: We understand where you're coming from.
1:01:49
SPEAKER_03: We're trying to make things a little easier for you.
1:01:51
SPEAKER_03: And we'll essentially accompany that with spending cuts.
1:01:53
SPEAKER_03: Yeah, absolutely.
1:01:54
SPEAKER_03: The two have to go hand in hand.
1:01:56
SPEAKER_03: And I think someone said earlier, I can't remember whom, that tax is not just about raising revenue.
1:02:01
SPEAKER_03: It's also about creating equalities.
1:02:03
SPEAKER_03: And I don't think necessarily our system at the moment is creating those equalities.
1:02:07
SPEAKER_03: It's much better than it was when I started my career in tax in Kenya.
1:02:10
SPEAKER_03: But we need to have a system that is clear.
1:02:13
SPEAKER_03: Not only that, talk about your investors.
1:02:16
SPEAKER_03: What does an investor look for?
1:02:17
SPEAKER_03: And I can tell you,
1:02:18
SPEAKER_03: if you look at the top 10 things an investor coming into the country is looking for,
1:02:22
SPEAKER_03: tax is likely to be 7,
1:02:23
8,
1:02:23
9,
1:02:23
10.
1:02:24
SPEAKER_03: Because most investors are prepared to pay the tax if it isn't within the law.
1:02:28
SPEAKER_03: But if the tax is excessive and the tax in Tanzania is less and the cost of doing
1:02:34
SPEAKER_03: business is equivalent,
1:02:36
SPEAKER_03: if I have to pay this tax in Tanzania,
1:02:37
SPEAKER_03: I'll probably go to Tanzania.
1:02:38
SPEAKER_03: I won't do it.
1:02:39
SPEAKER_03: I won't invest.
1:02:41
SPEAKER_03: And I think that's what we need to look at as a government, as a country.
1:02:45
SPEAKER_03: We need to look forward to how we're going to attract people to come into the country.
1:02:48
SPEAKER_03: How are we going to get local businesses to invest more?
1:02:52
SPEAKER_03: And we can't do it if there's no certainty in our policy.
1:02:55
SPEAKER_03: Indeed, and that policy certainty really is the one.
1:02:58
SPEAKER_03: I want to start taking a couple more questions from the audiences.
1:03:00
SPEAKER_03: I think I've been sent in directly to the Mungo Capital account DMs.
1:03:04
SPEAKER_03: And just to preface that,
1:03:06
SPEAKER_03: if you look at Article 4 review that Kenya had with the IMF,
1:03:10
SPEAKER_03: and you're looking at,
1:03:11
SPEAKER_03: they had this risk matrix analyzing the source of the risk,
1:03:14
SPEAKER_03: the likelihood of that risk taking place and the impact it would have on the economy.
1:03:19
SPEAKER_03: One of the potential domestic shocks they actually listed were, quote unquote, political risks.
1:03:23
SPEAKER_03: And this is what they said explicitly.
1:03:25
SPEAKER_03: unrest could re-emerge in connection with protests against higher costs of living
1:03:29
SPEAKER_03: the need to raise more taxes and the electoral process supported by the political
1:03:33
SPEAKER_03: opposition and their recommendation at the time was remain committed to reforms
1:03:37
SPEAKER_03: under the program clearly at this point in time i think that risk at the time they
1:03:41
SPEAKER_03: addressed it the likelihood of it coming up has been medium but really think in
1:03:44
SPEAKER_03: light of what has happened in the last couple of days the risk was a lot higher
1:03:47
SPEAKER_03: churchill there's a question here for you given the withdrawal or the finance bill
1:03:52
SPEAKER_03: What are your thoughts on the fiscal targets in relation to the IMF program?
1:03:56
SPEAKER_03: What do you expect will happen in the next review?
1:03:58
SPEAKER_03: Which at this point in time is, we know it's somewhere in July, but we don't know exactly when in July.
1:04:03
SPEAKER_02: So the seventh review was looking at the fiscal target as at the end of December 2023.
1:04:10
SPEAKER_02: So fiscal review, so the fiscal targets are there.
1:04:13
SPEAKER_02: We're looking at
1:04:14
SPEAKER_02: two key things here.
1:04:15
SPEAKER_02: There's a target revenue and also there's what you call the primary budget.
1:04:19
SPEAKER_02: So primary budget now look at revenues,
1:04:22
SPEAKER_02: ordinary revenue,
1:04:23
SPEAKER_02: and then you deduct for creditors,
1:04:26
SPEAKER_02: including interest payments.
1:04:28
SPEAKER_02: So there's a floor that was the target that was there.
1:04:31
SPEAKER_02: So the seventh review was
1:04:33
SPEAKER_02: actually looking at targets around December 2023.
1:04:36
SPEAKER_02: And from that, I know we missed on the tax revenue.
1:04:39
SPEAKER_02: Primary balance, we also meet that target, if I remember correctly.
1:04:44
SPEAKER_02: And now the forecast for the next review,
1:04:46
SPEAKER_02: the AP review,
1:04:47
SPEAKER_02: should ideally be looking at the target at the end of June 2023.
1:04:52
SPEAKER_02: So, eight reviews should be right about November day about this year.
1:04:56
SPEAKER_02: The checking token, the fiscal numbers, tax revenue, primary budget at the end of this fiscal year.
1:05:02
SPEAKER_02: We know for a fact that tax revenue was revised lower by $250 billion.
1:05:07
SPEAKER_02: I just,
1:05:07
SPEAKER_02: I looked at the revenue loan and grants documents and that sort of gives me
1:05:12
SPEAKER_02: conviction that they reduced the tax.
1:05:15
SPEAKER_02: revenue by 250 billion and also fiscal primary balance is also from a slight
1:05:22
SPEAKER_02: positive that was there and such the january review and come down lower to a
1:05:28
SPEAKER_02: negative so that's a slippage on backs based on the numbers that i've looked at so
1:05:33
SPEAKER_02: i'm with all this because i felt
1:05:36
SPEAKER_02: Reading from the statement that I put out sometime late last night,
1:05:40
SPEAKER_02: it was a bit vague in terms of what exactly.
1:05:43
SPEAKER_02: So there was like a wait and see as to the stepping stock of the development that
1:05:47
SPEAKER_02: has happened over the last couple of days.
1:05:50
SPEAKER_02: But I think that we should make some tweaks in the fiscal target.
1:05:54
SPEAKER_02: My view is getting into the programming coming from end in March next year.
1:05:59
SPEAKER_02: So by that,
1:06:00
SPEAKER_02: they should be taking the March review of the fiscal numbers at the end of December
1:06:05
SPEAKER_02: this year.
1:06:06
SPEAKER_02: So obviously that should lead to some tweaks in tax revenue down because I don't
1:06:11
SPEAKER_02: think that there could be any tax amendments that will be there that will now lead
1:06:17
SPEAKER_02: to a higher increase in the tax revenue and also the fiscal,
1:06:21
SPEAKER_02: the primary budget balance.
1:06:23
SPEAKER_02: In the event that there's a supplementary budget, that should now lead to a higher primary balance.
1:06:28
SPEAKER_02: As it is right now,
1:06:29
SPEAKER_02: the primary balance is quite positive,
1:06:32
SPEAKER_02: $300 billion,
1:06:32
SPEAKER_02: because the authorities initially are looking at getting more revenue.
1:06:35
SPEAKER_02: So that means that the primary balance should not be higher.
1:06:38
SPEAKER_02: More positives around 2.2% on GDP.
1:06:41
SPEAKER_02: At the end of the fiscal year, I think they'll have to adjust it much lower to more realistic levels.
1:06:48
SPEAKER_03: Churchill, how much scope do you think the IMF actually has here to revise these targets slower?
1:06:53
SPEAKER_03: Given everything that's happened in the last six weeks,
1:06:55
SPEAKER_03: but even assuming that they do,
1:06:56
SPEAKER_03: what material effect does that then have to us?
1:06:59
SPEAKER_03: Because we still have, I believe it's the next two, three fiscal years.
1:07:02
SPEAKER_03: The amount of redemptions coming through from the IMF and the World Bank,
1:07:05
SPEAKER_03: a lot of this multinational debt,
1:07:07
SPEAKER_03: it really starts to ramp up.
1:07:08
SPEAKER_03: It goes up to a hundred billion shillings in some cases for each of these institutions.
1:07:13
SPEAKER_03: Is there a scenario in which the IMF might be willing to say,
1:07:16
SPEAKER_03: OK,
1:07:16
SPEAKER_03: in addition to relaxing some of these targets that we have baked into the program,
1:07:20
SPEAKER_03: we're also willing to essentially push out some of the maturity dates for the debts
1:07:23
SPEAKER_03: that Kenya has taken?
1:07:24
SPEAKER_02: Quite interesting that you asked that.
1:07:26
SPEAKER_02: And remember that the current review has been quite structured.
1:07:29
SPEAKER_02: Initially,
1:07:29
SPEAKER_02: it started all the way in early April,
1:07:31
SPEAKER_02: then took a pause with the spring meetings,
1:07:33
SPEAKER_02: and then it resumed with the planting of the trees,
1:07:36
SPEAKER_02: or just right about when we went to plant in May.
1:07:38
SPEAKER_02: And then it's been quite structured.
1:07:40
SPEAKER_02: You can say like over eight weeks.
1:07:43
SPEAKER_02: And from an IMF perspective,
1:07:45
SPEAKER_02: I think that all eyes were on this finance bill so that they can sign off on the
1:07:49
SPEAKER_02: disbursement at the 7th review,
1:07:51
SPEAKER_02: but clearly that has now taken them to the drawing board.
1:07:54
SPEAKER_02: So you can imagine how,
1:07:56
SPEAKER_02: from what I'm expecting,
1:07:58
SPEAKER_02: how they are looking at what has been done for close to 8 or 12 weeks.
1:08:02
SPEAKER_02: the quote-unquote going down the drain, if I may put it that way.
1:08:06
SPEAKER_02: So obviously let's just put it in learned terms in the sense that programming as it
1:08:11
SPEAKER_02: is coming to an end in March next year,
1:08:14
SPEAKER_02: is there a scope that you could have a successor program?
1:08:17
SPEAKER_02: They went that now the current program is an extended fund facility, extended fund facility.
1:08:23
SPEAKER_02: Is there a scope that you can have a successor program?
1:08:26
SPEAKER_02: As it is, I don't think so.
1:08:29
SPEAKER_02: And let's now we have a standard standby arrangement that we had some time during
1:08:34
SPEAKER_02: 2017 to 2019,
1:08:35
SPEAKER_02: which is more like a precautionary insurance arrangement with the IMFs.
1:08:40
SPEAKER_02: And with that,
1:08:40
SPEAKER_02: is that where everyone come in and try to play the big brother,
1:08:45
SPEAKER_02: at least in the outlier years after the IMF program has come to an end.
1:08:49
SPEAKER_02: But as it is,
1:08:50
SPEAKER_02: with the program coming to an end,
1:08:51
SPEAKER_02: I think the focus will be the other seven reviews looking at end December numbers,
1:08:56
SPEAKER_02: December 2023 numbers.
1:08:58
SPEAKER_02: And the 8th and 9th of the year,
1:08:59
SPEAKER_02: we'll be looking at the this month number and also the December 2024 number.
1:09:05
SPEAKER_02: All right,
1:09:05
SPEAKER_03: then I want to push this forward a little bit,
1:09:07
SPEAKER_03: just actually building on exactly what you've said,
1:09:09
SPEAKER_03: Churchill.
1:09:10
SPEAKER_03: This program at the IMF ends next year in March.
1:09:14
SPEAKER_03: And the fact of the matter is that if we didn't have this $3 to $5 billion coming
1:09:19
SPEAKER_03: through from the IMF,
1:09:20
SPEAKER_03: from the World Bank,
1:09:21
SPEAKER_03: in the last three or four years, the Canadian fiscal situation had been a lot harder to deal with.
1:09:26
SPEAKER_03: But at this point in time,
1:09:27
SPEAKER_03: should we expect Treasury to then say,
1:09:29
SPEAKER_03: look,
1:09:29
SPEAKER_03: we need a standby arrangement,
1:09:31
SPEAKER_03: one,
1:09:31
SPEAKER_03: from March moving forward?
1:09:33
SPEAKER_03: And even if we did, because my underlying assumption with this question is,
1:09:36
SPEAKER_03: We're really not likely to have market access in the next two or three years.
1:09:40
SPEAKER_03: If we're effectively locked out of the markets,
1:09:42
SPEAKER_03: we still will need to some extent to have the quote unquote cover that comes with
1:09:48
SPEAKER_03: having an IMF program.
1:09:49
SPEAKER_03: Or is my assumption there fundamentally wrong?
1:09:51
SPEAKER_03: Dixon, you can weigh in and then Churchill.
1:09:53
SPEAKER_02: I think you're right in the sense that we do need the IMF cover.
1:09:56
SPEAKER_02: I think we'll have to extend that.
1:09:57
SPEAKER_02: Part of the reason why the market is so happy to give us money in the last Eurobond
1:10:01
SPEAKER_02: we issued in February is the World Bank came and said they're committing up to,
1:10:05
SPEAKER_02: I think,
1:10:05
SPEAKER_02: 12 billion for Kenya via the DPO and the other bargains they had.
1:10:09
SPEAKER_02: The IMF said they're absolutely committed to supporting Kenya.
1:10:12
SPEAKER_02: And this was to boost the market confidence so that Kenya gets back market access.
1:10:15
SPEAKER_02: So the worry right now, like you rightly put, is that
1:10:18
SPEAKER_02: With these fiscal issues,
1:10:19
SPEAKER_02: with the finance bill raising all these fiscal concerns,
1:10:23
SPEAKER_02: we've already lost market access.
1:10:24
SPEAKER_02: So if a steady party busts with the situation the way it is right now, IMF will be forced to tap in.
1:10:28
SPEAKER_02: Because if you're not able to roll over the debt in the medium term,
1:10:31
SPEAKER_02: obviously we will default on our foreign currency debt.
1:10:34
SPEAKER_02: Simply because we just don't have enough reserves to service that.
1:10:36
SPEAKER_02: We can keep pushing it out as long as the market is willing to roll over the debt.
1:10:40
SPEAKER_02: But if we are called to pay it, we owe $39 billion and we only have $8 billion in reserves.
1:10:45
SPEAKER_02: So that's not going to be enough.
1:10:46
SPEAKER_02: On the expenditure side,
1:10:47
SPEAKER_02: I would say,
1:10:48
SPEAKER_02: look,
1:10:48
SPEAKER_02: if you get into debt default or debt distress and you structure your debt,
1:10:52
SPEAKER_02: the conditions they give you are much,
1:10:53
SPEAKER_02: much worse than you would have if you go back and cut the expenditure yourself.
1:10:57
SPEAKER_02: So it might look like you can't cut expenditure because you made promises to voters
1:11:02
SPEAKER_02: or whatever it is,
1:11:03
SPEAKER_02: but you're going to be in a better situation if you cut it yourself.
1:11:06
SPEAKER_02: Maybe a cut,
1:11:06
SPEAKER_02: maybe 10 or 20% of what you would have to cut if you defaulted on your debt and you
1:11:11
SPEAKER_02: had to restructure.
1:11:12
SPEAKER_02: So I've always said the structure looks like it's an easy pill,
1:11:15
SPEAKER_02: but sometimes it can become a very,
1:11:17
SPEAKER_02: very bitter pill.
1:11:18
SPEAKER_02: And for us especially,
1:11:19
SPEAKER_02: because when you restructure the debt,
1:11:20
SPEAKER_02: you cannot restructure multilateral and development organization funding because
1:11:24
SPEAKER_02: it's concessionary.
1:11:25
SPEAKER_02: So you're only able to restructure the commercial lending and the stication.
1:11:29
SPEAKER_02: And because we've been rolling over our commercial and syndicated loans,
1:11:32
SPEAKER_02: we've paid a lot of the Chinese debt using the IMF money and stuff like that.
1:11:35
SPEAKER_02: You find that the portion of debt that is eligible for restructure in Kenya is quite small.
1:11:40
SPEAKER_02: I think I saw a site saying just about $13 billion over there, of the over $38 billion we owe.
1:11:45
SPEAKER_02: And assuming you'll get,
1:11:46
SPEAKER_02: let's say,
1:11:47
SPEAKER_02: a 40% haircut that you get from the market for that,
1:11:49
SPEAKER_02: that's around $4 billion.
1:11:51
SPEAKER_02: So why would you go through a restructure if you're just going to drop your debt by
1:11:54
SPEAKER_02: 4% and then go under such student conditions that don't work?
1:11:57
SPEAKER_02: So to me, I would say the easy hanging fruit right now will be to cut expenditure.
1:12:01
SPEAKER_02: Cut it hard.
1:12:02
SPEAKER_02: Make sure that the fiscal target you had, you retain that.
1:12:05
SPEAKER_02: Market would reward you to be able to give you market access, be able to roll over that.
1:12:09
SPEAKER_02: And domestic market, if you decide to borrow on $300 billion, market can absorb that quite easily.
1:12:13
SPEAKER_02: Interest rates will come down.
1:12:14
SPEAKER_02: And as the interest rates come down, they'll give you fiscal headroom.
1:12:17
SPEAKER_02: Because remember, the debt is never really repaid.
1:12:19
SPEAKER_02: What you do is that you keep rolling that over.
1:12:20
SPEAKER_02: But the difference is that every year you have the debt service cost.
1:12:23
SPEAKER_02: So if your debt service costs at 7% or at 17%, it's a huge substantial difference.
1:12:27
SPEAKER_02: You could be having the same sort of debt at a 60% discount in terms of debt service cost.
1:12:33
SPEAKER_02: If you're running a low deficit and you balance with your budget,
1:12:37
SPEAKER_02: and the savings you make from that,
1:12:38
SPEAKER_02: assuming you have,
1:12:39
SPEAKER_02: say,
1:12:40
SPEAKER_02: $5 trillion in debt and you're saving 10%,
1:12:41
SPEAKER_02: that's $500 billion a year eventually,
1:12:44
SPEAKER_02: assuming in the medium term you're all over all that debt at a lower yield.
1:12:48
SPEAKER_02: $500 billion annually, you can imagine, is way more than the access you're looking at right now.
1:12:52
SPEAKER_02: So ideally right now,
1:12:53
SPEAKER_02: the longer the hangover food will be,
1:12:54
SPEAKER_02: cut expenditure to your budget,
1:12:56
SPEAKER_02: try and get the interest rate to come down.
1:12:58
SPEAKER_02: That will also help the economy pick up a little.
1:13:01
SPEAKER_02: It helps your NPLs start to recycle.
1:13:04
SPEAKER_02: Again, banks lending, as a bank lend, then you boost your revenues.
1:13:07
SPEAKER_02: And from that, then you get the headroom.
1:13:08
SPEAKER_02: But obviously it's going to be very painful because this time then you have to say
1:13:11
SPEAKER_02: there's no such constant thing.
1:13:12
SPEAKER_02: You have to cut if it's roads, if it's health, whatever, just make sure that you balance that.
1:13:16
SPEAKER_02: For a couple of years,
1:13:17
SPEAKER_02: maybe even one year,
1:13:18
SPEAKER_02: because remember our domestic debt service is about 800 billion.
1:13:21
SPEAKER_02: Those are coupons you'll pay out and investors will have to roll over that.
1:13:25
SPEAKER_02: So if you only borrow 300 billion of that,
1:13:26
SPEAKER_02: they'll have 500 billion that they'll have to recycle,
1:13:28
SPEAKER_02: whether it's banks or pensions or whatever.
1:13:30
SPEAKER_02: And eventually, if they can't find another outlet, they'll push that back to the economy.
1:13:33
SPEAKER_02: And if you have them, the credit cycle picks up and a market starts expanding credit.
1:13:38
SPEAKER_02: Then you have the economic stimulus that then boosts up your revenues.
1:13:41
SPEAKER_02: Because if you keep interest rates where they are,
1:13:44
SPEAKER_02: I think you're going to have an issue raising revenues with this.
1:13:46
SPEAKER_03: Indeed.
1:13:47
SPEAKER_03: We've been having this conversation for the last 19 minutes.
1:13:50
SPEAKER_03: And I'd like to give my panelists,
1:13:52
SPEAKER_03: they've been generous at the time,
1:13:53
SPEAKER_03: their thoughts and their ideas here with us.
1:13:54
SPEAKER_03: Over the last 90 minutes, an opportunity to essentially give us a closing thought in a minute or less.
1:13:59
SPEAKER_03: Nikhil Hira, let's start with you and then we'll go to Stella, then Dixon, then Churchill.
1:14:03
SPEAKER_03: Yeah, thanks, Ramon.
1:14:04
SPEAKER_03: Thank you, Marlon Capital, for having me on this.
1:14:06
SPEAKER_03: Look, the key today is not necessarily the tax revenue.
1:14:09
SPEAKER_03: Yes, we can increase it.
1:14:11
SPEAKER_03: We're not going to increase it at the bottom of the pyramid.
1:14:14
SPEAKER_03: We're really going to increase it by making sure that people who should be paying
1:14:17
SPEAKER_03: tax and are in the net are paying tax and reduce evasion and what have you.
1:14:22
SPEAKER_03: But that's not going to give us a significant amount in comparison to what we need.
1:14:26
SPEAKER_03: So therefore, like any sensible person, we need to reduce our expenditure.
1:14:30
SPEAKER_03: And that's where we have to go.
1:14:31
SPEAKER_03: We have to cut out a whole load of things that really make no sense at all and just
1:14:36
SPEAKER_03: cut our expenditure to the bare minimum to get us going for the next couple of years.
1:14:41
SPEAKER_03: I'm very optimistic about Kenya going forward.
1:14:44
SPEAKER_03: Maybe not in the short term, but certainly in the medium, short to medium, medium to long term.
1:14:49
SPEAKER_03: We have a lot going for us.
1:14:50
SPEAKER_03: We have people who are perhaps the best educated on the continent.
1:14:53
SPEAKER_03: We are entrepreneurial, most of us.
1:14:55
SPEAKER_03: We want to work.
1:14:56
SPEAKER_03: We want to earn a living.
1:14:57
SPEAKER_03: And we just need the policy framework to allow us to do it.
1:15:00
SPEAKER_03: And that's where the government has to do its part.
1:15:03
SPEAKER_03: Thanks.
1:15:04
SPEAKER_03: Stella, your thoughts?
1:15:05
SPEAKER_03: Where should we go, at least in the next four to six weeks?
1:15:08
SPEAKER_00: Thanks, Rama.
1:15:08
SPEAKER_00: I believe and I see this as a really tough balance for the government because we're
1:15:13
SPEAKER_00: dealing with a government that loves to spend and we have quote-unquote a crisis
1:15:19
SPEAKER_00: with regards to the debt aspect or the debt space.
1:15:22
SPEAKER_00: So we're dealing with the issue of trying to convince and show the government the
1:15:27
SPEAKER_00: sense of cutting expenditure and on the other hand,
1:15:30
SPEAKER_00: working on ways to reduce the pressure on debt repayment.
1:15:33
SPEAKER_00: The balance is
1:15:34
SPEAKER_00: very tough because on one end, we are looking at consequences of restructuring debt.
1:15:39
SPEAKER_00: For example,
1:15:40
SPEAKER_00: the issue of credit rating,
1:15:42
SPEAKER_00: which comes with the downward grading from other rating agencies.
1:15:47
SPEAKER_00: And this again is followed by other consequences like
1:15:51
SPEAKER_00: at depreciation of the currency and even what you mentioned earlier,
1:15:54
SPEAKER_00: the issue of access to international markets.
1:15:57
SPEAKER_00: So in my view, this is a tough balance and what has to be done has to be done.
1:16:02
SPEAKER_00: And in this case,
1:16:02
SPEAKER_00: we have to really look at the recurrent expenditure side and ways of working out
1:16:08
SPEAKER_00: how to ease the pressure on debt refinement or debt service.
1:16:12
SPEAKER_00: Thanks a lot.
1:16:13
SPEAKER_03: Asante Sana.
1:16:13
SPEAKER_03: Dixon, over to you, and then we'll wrap up with Chochung.
1:16:16
SPEAKER_03: Thank you.
1:16:17
SPEAKER_02: I think over the next four to six weeks,
1:16:19
SPEAKER_02: I would say we seem to have a crisis of confidence and a lot of trust deficit
1:16:23
SPEAKER_02: between the state and the citizens.
1:16:25
SPEAKER_02: And the challenge is that we have this dead mountain and everything that the
1:16:29
SPEAKER_02: government has been doing for the last two years,
1:16:31
SPEAKER_02: even slightly before that,
1:16:33
SPEAKER_02: has been geared towards managing that.
1:16:35
SPEAKER_02: And that usually conflicts very, very directly with promises that you make when you're campaigning.
1:16:40
SPEAKER_02: Because you promise all these things,
1:16:42
SPEAKER_02: but then you come to power and you can't do them because you have to mind these debts.
1:16:46
SPEAKER_02: And that eventually morphs into the issues that we've seen happening.
1:16:49
SPEAKER_02: So we have this situation where the government's hands are tied.
1:16:51
SPEAKER_02: They can't increase taxes.
1:16:53
SPEAKER_02: I want to imagine even cutting the spending itself is going to be a big issue because...
1:16:57
SPEAKER_02: Times are hard.
1:16:58
SPEAKER_02: If you're cutting funding into health, into education, people can't go to uni.
1:17:02
SPEAKER_02: If you're reducing expenditure on roads,
1:17:03
SPEAKER_02: infrastructure is struggling with the floods,
1:17:06
SPEAKER_02: so you have to maintain roads,
1:17:06
SPEAKER_02: so you have to repair them.
1:17:07
SPEAKER_02: And if you don't do that,
1:17:08
SPEAKER_02: there's a physical and sort of obvious pointer to everyone that things are not working.
1:17:12
SPEAKER_02: Then you have an issue now.
1:17:13
SPEAKER_02: So I feel that having these crises happen,
1:17:16
SPEAKER_02: maybe it gives the government a chance to push this back to the civil society and
1:17:19
SPEAKER_02: the community and have them debate this on an extra-constitutional way,
1:17:23
SPEAKER_02: away from Parliament,
1:17:24
SPEAKER_02: because Parliament has a trust deficit right now.
1:17:27
SPEAKER_02: and then the public sort of set the priorities and decides if this amount that we
1:17:31
SPEAKER_02: have from the funding side because we've reversed now the process we're supposed to
1:17:35
SPEAKER_02: do the appropriations and do the finance but if you've decided you've kept the
1:17:38
SPEAKER_02: financing you can't raise taxes then you have an idea of where the tax number would
1:17:41
SPEAKER_02: be then you have to come back and look at the appropriation and say what are we
1:17:44
SPEAKER_02: going to have to spend i feel that
1:17:46
SPEAKER_02: At this point in time, the government cannot really push that agenda.
1:17:48
SPEAKER_02: Maybe the solutions towards what can be cut should also come from the society, from the market.
1:17:54
SPEAKER_02: And if there are any priority areas that they feel they can be spent,
1:17:57
SPEAKER_02: I think that can still be pushed back to Parliament.
1:17:59
SPEAKER_02: I think even with what the president did,
1:18:01
SPEAKER_02: if there was an anonymous decision that went to Parliament and the whole floor was
1:18:05
SPEAKER_02: happy with it,
1:18:06
SPEAKER_02: they could raise to thirds,
1:18:07
SPEAKER_02: amend that bill.
1:18:08
SPEAKER_02: and they don't need presidential assent.
1:18:10
SPEAKER_02: That would be bad.
1:18:11
SPEAKER_02: So I think what we need right now is for parliament to reach out to the community
1:18:15
SPEAKER_02: and let the community assess the situation from neutral eyes and say,
1:18:19
SPEAKER_02: we are in this crisis.
1:18:20
SPEAKER_02: We have X amount of taxes.
1:18:21
SPEAKER_02: We can't raise debt.
1:18:23
SPEAKER_02: We can't increase our debt, but we have to fund the budget for the next couple of years.
1:18:27
SPEAKER_02: And this is the outcomes we expect from that.
1:18:29
SPEAKER_02: And we know there will be sacrifices and we are choosing to have these sacrifices
1:18:31
SPEAKER_02: spread across everyone,
1:18:33
SPEAKER_02: which then buys you that public confidence and
1:18:35
SPEAKER_02: Once you have that number and it goes back to the market, then everything else will fall in place.
1:18:39
SPEAKER_02: So I feel for now, I think buying that trust is what we need mostly.
1:18:44
SPEAKER_03: Indeed, and that really is the skill of the mountain that has to be climbed there is immense.
1:18:49
SPEAKER_03: Churchill, if you get the last words, you get to close this out for us on this Thursday evening.
1:18:54
SPEAKER_03: Thanks Rama.
1:18:55
SPEAKER_02: So three things, considering that you are in an unprecedented time.
1:19:00
SPEAKER_02: The first one is around spending.
1:19:02
SPEAKER_02: So there needs to be a whole rethink about how we come up with the expenditure target year in, year out.
1:19:08
SPEAKER_02: This whole issue idea around little bit budgeting, probably you need to have
1:19:14
SPEAKER_02: a real look at that so as to be able to find ways of catching the slack that you
1:19:19
SPEAKER_02: normally have on expenditure items.
1:19:21
SPEAKER_02: Secondly, it's around financing.
1:19:22
SPEAKER_02: This whole idea that Jan Witts has been saying time and again on this call,
1:19:27
SPEAKER_02: that reasonable revenues via Numerif that
1:19:30
SPEAKER_02: proposals.
1:19:31
SPEAKER_02: Probably we need to also have a rethink around that.
1:19:34
SPEAKER_02: And rather than having an omnibus finance deal,
1:19:37
SPEAKER_02: why countries even have a few tax amendments year in,
1:19:41
SPEAKER_02: year out?
1:19:41
SPEAKER_02: I've seen even Uganda, they have the amendment to tax laws income.
1:19:47
SPEAKER_02: They never have finance bill, by the way, in Uganda.
1:19:50
SPEAKER_02: But if you can aggregate all the
1:19:54
SPEAKER_02: proposals in the current financial year, I think it's never led them to amendments.
1:19:59
SPEAKER_02: Why can't we as a country also look at that direction rather than having an omnibus
1:20:05
SPEAKER_02: finance deal which tends to be contentious?
1:20:08
SPEAKER_02: You've seen it year in, year out.
1:20:09
SPEAKER_02: There's one or two clauses that are quite contentious.
1:20:12
SPEAKER_02: So we also need to look at it that way.
1:20:15
SPEAKER_02: Lastly, around restructuring, it's quite evident that the big problem here is the limited interest costs.
1:20:23
SPEAKER_02: right about 75% to 80% in one given year going toward domestic interest payments.
1:20:30
SPEAKER_02: And like the focus tends to be on restructuring external debt by things to be able
1:20:35
SPEAKER_02: to get more realistic savings,
1:20:37
SPEAKER_02: we also want to have a look at domestic debt.
1:20:41
SPEAKER_02: Looking,
1:20:41
SPEAKER_02: for example,
1:20:42
SPEAKER_02: domestic debt exchange program that happened in Ghana,
1:20:45
SPEAKER_02: right,
1:20:45
SPEAKER_02: took around three to four months for it from start to completion.
1:20:49
SPEAKER_02: That was quite quick, but in
1:20:51
SPEAKER_02: That's not good funding.
1:20:52
SPEAKER_02: I think they did not have principal haircut.
1:20:55
SPEAKER_02: What the import of that was pretty much reducing the average interest cost,
1:21:01
SPEAKER_02: the coupon payments from an average of 19% to 9%.
1:21:04
SPEAKER_02: So if you can repeat anyone case whereby right now the coupon rate in the last two
1:21:10
SPEAKER_02: years have been above 15%.
1:21:12
SPEAKER_02: And we sort of respect that to around, say, 12%, 10% to 12%.
1:21:17
SPEAKER_02: What kind of savings can we be able to get even in the end-of-year and financial year?
1:21:21
SPEAKER_02: In terms of respect,
1:21:22
SPEAKER_02: again,
1:21:22
SPEAKER_02: rather than looking at external debt,
1:21:24
SPEAKER_02: Dixon mentioned the numbers,
1:21:25
SPEAKER_02: we are looking at around $10 billion.
1:21:28
SPEAKER_02: By it, we have our stock of domestic debt, which is around $40 billion.
1:21:32
SPEAKER_02: and this is the elephant in the room.
1:21:35
SPEAKER_02: Probably it's also about time that we also need to retract time,
1:21:39
SPEAKER_02: domestic debt,
1:21:40
SPEAKER_02: try as much as possible to cushion the principal investment,
1:21:44
SPEAKER_02: but try as much as possible to find ways of trying to reduce the coupon payment on
1:21:49
SPEAKER_02: the domestic debts.
1:21:50
SPEAKER_02: Let me stop at that point.
1:21:51
SPEAKER_02: With that, I will go on a limb with that particular proposal.
1:21:55
SPEAKER_02: Thanks, Farma, for having me.
1:21:57
SPEAKER_03: It's interesting that we're closing on this note because I remember in the middle
1:21:59
SPEAKER_03: of the COVID-19 pandemic,
1:22:02
SPEAKER_03: this was in 2020,
1:22:03
SPEAKER_03: one of the articles I ended up doing for Bloomberg at the time literally focused on
1:22:07
SPEAKER_03: that exact same idea,
1:22:09
SPEAKER_03: but I believe it came out from the Actuary Society.
1:22:12
SPEAKER_03: It's a couple of years old now, so I'll have to go and find it.
1:22:15
SPEAKER_03: But at the time, the argument was, look, we know we have a debt crisis.
1:22:19
SPEAKER_03: We're essentially treading on shaky ground,
1:22:21
SPEAKER_03: but we have this wider macroeconomic crisis that's in hand now.
1:22:25
SPEAKER_03: This might be an interesting opportunity to essentially hit the reset button.
1:22:28
SPEAKER_03: And here we are, ironically, about five years later, talking about the exact same thing.
1:22:34
SPEAKER_03: Churchill, Dixon, Nicolera, Stelis again, of course, little Ernie Wycliffe.
1:22:38
SPEAKER_03: From LSK's Nairobi chapter.
1:22:40
SPEAKER_03: All of you, thank you very much for your time and your insights and your thoughts and your ideas.
1:22:44
SPEAKER_03: This evening,
1:22:44
SPEAKER_03: I'm sure we're going to have this conversation in much more detail over the next
1:22:47
SPEAKER_03: six weeks or thereabouts.
1:22:48
SPEAKER_03: Of course, to our audience, santeni sana.
1:22:51
SPEAKER_03: We do not take your time and your attention for granted.
1:22:54
SPEAKER_03: I hope this session was of use to you and I'm sure we'll have a lot more of these
1:22:58
SPEAKER_03: especially notes to come.
1:23:00
SPEAKER_03: Thank you very much.