DR DANIEL MUTEGI GITI: Gov't and private sector work together for the benefit of wananchi

For the record, the government will borrow KSh. 586.5 billion externally, while at the same time ensuring that it reduces the overall debt obligations and strain on the economy. External borrowing comes from diverse sources like the International Financial Institutions like the World Bank and The International Monetary Fund (IMF), foreign lenders, commercial banks, foreign governments among others. It should be noted that all governments globally borrow or have loans and as such, it not an entirely a bad thing or something out of the ordinary, financial wise. 

The government plans to borrow KSh. 131.5 billion locally in the local financial markets because the government has been keen to reduce the local borrowing so that it gives room for increased private sector borrowing locally to stimulate the economy. It is a known fact that the private sector is responsible for more job and employment creation than the government and hence government is always keen to ensure that it doesn’t reduce the ability of the private sector to borrow and expand. The design for Kenya Vision 2030 for example is for the government to fund 30 per cent of development through creation of an enabling environment and the private sector to fund the rest, 70 per cent and hence ensure a healthy national development matrix. 

The Government established the Public Debt Management Office so that some of the money borrowed is used to pay off maturing debts and other fiscal obligations. The office works to ensure healthy borrowing for the nation, because debt is ok so long as they are sustainable and can be repaid as agreed.

 Local borrowing or domestic borrowing comes from Treasury Bills and Bonds, pre-1997 government overdraft facilities at the Central Bank, tax reserve certificates and commercial bank advances. The Treasury bills (short secure investment typically lasting for 91 days) and Treasury bonds (secure medium-term investments typically paying interests every six months) to have accounted for 97 per cent of all domestic borrowing for the last one decade. 

Kenyans can participate in the business of Treasury bills and bonds, which are highly profitable and can be bought with as little as KSh. 50,000, through opening a Central Depository and Settlements Account (CDSC) with Central Bank. 

There is need to turn to greater use of Public Private Partnerships (PPPs) so that critical programmes and projects are adequately funded and resourced. In addition, there is need to ensure that the national and county governments create an enabling environment for increased investments and also expansion of the tax brackets so that more Kenyans pay taxes and hence ensure that the country can sustain its development. Public officials must ensure that the allocations for various programmes and projects are implemented and utilized as planned to give Kenyans more confidence in government revenue raising measures, because it’s our government and we must support it. 

PPPs are a solution to our development needs currently because since private sector has participated in the infrastructure designing, financing, construction and operationalization since the advent of civilization. This relationship has worked in two disconnected ways, where first the government finances such construction through budgetary allocations and the private sector undertakes the actual construction, operations and maintenance of such infrastructure. Under PPPs, there is a mutual relationship between the public and private players for more innovative projects design, finance, construction, operation and eventual handing over to the public sector.

 

The need for use of PPPs in our development financing is rooted in the Enabling Markets to Work Strategy (EMWS) proposed by the international financial institutions in 1993, more specifically, the World Bank. This approach proposed the shifting of development and major infrastructure financing from the governments to the private entities, where the government only creates an enabling environment through removing any inhibitors to private capital and entrepreneurial spirit, which leads to increased demand and supply market systems; regulations and laws; institutions; setting standards and monitoring and evaluation, functions that are well performed by the public sector. 

PPPs is about three key issues. First is improved governance and resource mobilization strategies for financing the huge infrastructural requirements done effectively through mobilization of private sector financial capabilities. Secondly is the need to improve the efficiency of the government investments and utilization of the resources resident in a country; and thirdly is the utilization of strategies focusing on service delivery measures which guarantees maximum benefits to the citizenry (roads, water, sewerage, housing, electricity, education, waste management, employment opportunities among others are highly needed). 

PPPs provides a middle ground model between the government and private players since privatization, where there is complete government removal from service provision, and nationalization, where there is total removal of private sector from service provision have faced opposition globally. 

PPPs became more pronounced from the 1980’s beginning in the UK (which had extensively used them in 1500’s to 18th century to finance many projects, including the colonialization project through Imperial British East African Company) then spread to other countries. By 20th century, the concept of PPPs was accepted across many jurisdictions as an alternative instrument through which goods and services for the public sector can be effectively and efficiently procured, implemented and developed. PPPs are valuable and sustainable because they bring efficient capital, design, implementation, value for money, innovation through the bundling of functions and assigning them to the private entities, the whole of life cycle where private players have the whole spectrum of project from design to handing over, which makes it possible to introduce innovation.

PPPs are off-balance sheet financing arrangements in a country meaning it is not a debt that reflects on government books. Private players get long table stable contracts which are highly profitable, while the government gets to deliver goods and services to the citizens.