World Bank Kenya Director Urges Fiscal Reforms

The scandal surrounding SHA, the Social Health Authority, has not yet been resolved, and what really happened is already coming, when the next bad news comes. The "SHA scandal" refers to a major corruption and fraud scandal surrounding Kenya's SHA, which was established as a new public health insurance scheme to replace the National Hospital Insurance Fund (NHIF). The scandal involves billions of Kenyan shillings lost through fraudulent activities, such as payments to fictitious and dysfunctional health facilities, ghost hospitals, false patient records, and overbilling. Several hospitals, including those with political connections, were reported or closed due to their involvement. The scandal exposed serious administrative and operational malpractice and called for investigations, prosecutions, and reforms to combat corruption and restore public trust. The Kenyan government, including President William Ruto, has pledged to take decisive action against those involved and prevent a repeat of the NHIF's failings. However, concerns remain regarding the independence and operational integrity of the SHA's management and IT systems. The Audit Office and other bodies have called for parliamentary inquiries and legislative reviews to comprehensively address these systemic problems. World Bank Director for Kenya, Qimiao Fan, has urged the country to adopt a new fiscal compact to address investments in the health sector, rising debt, and the country's worsening labor market crisis. That's an excellent observation made by Mr. Fanvda. The challenges are not hidden. Anyone who walks through this country with caution can see it. We're getting to the heart of the problem. It's absolutely true that spending cuts alone cannot close Kenya's budget gap. The country is in a classic fiscal bind that requires a multi-pronged approach. Here's an analysis. 1. Why spending cuts aren't enough · Limited savings potential is hardly possible. A large portion of the budget is "rigid" and cannot simply be cut. · Public sector salaries can simply be forgotten. Kenya has a large public sector. Salary cuts are extremely politically difficult and can lead to social unrest, which has happened plenty of times. · How will the debt be serviced? This is the largest and non-negotiable item. A large portion of tax revenue goes directly to servicing the high external debt (interest and principal). This item must be paid to avoid national bankruptcy. Although it should be considered that national bankruptcy cannot be ruled out. · Mandatory development spending cannot simply be cut, because critical areas such as security, basic healthcare, and education must be maintained despite cuts. · This could have negative economic consequences. Excessive cuts can stifle the economy (austerity policy). · And reduced investment in infrastructure reduces growth potential. · Cuts to social programs can also exacerbate poverty and endanger internal security. · A weakened state can no longer provide effective economic stimulus. 2. The Real Core Problems: The Causes of the Gap The budget gap is not primarily caused by excessive spending, but by a combination of structural problems: · Low tax revenues (The Fundamental Problem): Despite efforts, Kenya's tax base remains narrow. A significant portion of economic activity takes place "in the shadows" and goes untaxed. This applies to both businesses and wealthy individuals. The Kenya Revenue Authority (KRA) struggles to capture and collect all potential taxpayers. The government often relies on distorting consumption taxes (value-added tax) that place a greater burden on the poor, rather than creating a broader income and wealth tax base. This is precisely what this government will not achieve. Kenya's debt level has risen sharply in recent years. An increasing portion of the budget is being used to service this debt (interest) instead of for education, health, or infrastructure. This is referred to as "budget degradation." Devaluation of the shilling: Since many loans were taken out in US dollars, any devaluation of the Kenyan currency dramatically increases the debt burden in shillings. Economic inefficiency and corruption: Funds intended for projects are wasted due to inefficient procurement practices, overpriced contracts, and corruption. This means that spending doesn't deliver the intended benefits. Loss-making state-owned enterprises (like Kenya Airways) often have to be bailed out with taxpayer money. . Conclusion: Your statement is absolutely true. Spending cuts alone are like pumping water out of a leaky boat without fixing the holes. The real solution lies in fixing the boat (increasing revenue, fighting corruption) while installing a more powerful pump (promoting growth). Only a combination of smarter spending, higher and fairer revenue, and sustained economic growth can permanently close Kenya's fiscal gap. @https://www.africa-press.net/kenya/all-news/world-banks-qimiao-fan-calls-for-fiscal-reforms @https://www.jigsawtree.com/post/why-didn-t-that-project-deliver-the-benefits-expected @https://www.kenyans.co.ke/news/115826-world-bank-kenya-director-qimiao-fan-urges-fiscal-reforms-tackle-debt-and-job-crisis?utm_source=Facebook&utm_medium=KI&fbclid=IwdGRzaAMjNQxjbGNrAyNRUGV4dG4DYWVtAjExAAEey2tTTGoVaq2cFdhVO79U5hC7bEaHP5uu-NSLllAEXxXFDhtn9R6aYZmyaLM_aem_vqlgHNeM_SXYws4VtjKiDQ&sfnsn=mo