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Increasing wage bill a threat to economic growth, warns World Bank

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By Diarietou Gaye

As you are aware, Kenya’s development agenda is anchored around Vision 2030, the Constitution and the Medium Term Plan II, which the Government launched in October 2013. Demand by civil servants for higher pay a threat to economic growthDemand by civil servants for higher pay a threat to economic growth

We want to reiterate our support to the Government’s development goals. Kenyans have high expectations that after half a century of independence, they are ready to move to the next level of growth and prosperity.

They trust in our economic projections, which point to the progress that Kenya is making towards achieving middle income status in the next decade.

We need to focus our thoughts on how best we can work together to shift Kenya’s growth from single digit to double digit, and also to expand opportunities for equitable distribution of resources and creating job opportunities for the hundreds of thousands of youth who join the labor market each year.

On November 12, we participated in a pre-DPF technical session to set the ground for this forum today.

During the event, we listened, learned and exchanged ideas on where the real issues are and how to fix them.

Let me highlight a few of points that were discussed:

The economy continues to grow at around five per cent but this is not sufficient to propel Kenya to middle income status. There will be need for a serious agenda of policy reforms and high level of targeted investment with greater private sector participation.

Devolution is posing challenges and counties are making an effort to respond to the needs of the people. But disagreements abound, especially in the allocation and sharing of resources between the national and county governments.

Moreover, functions and responsibilities such as agriculture, healthcare and maintenance of basic infrastructure are progressively being devolved, but the provision and quality of services at the local level are being hampered by capacity constraints, a weak link between planning and budgeting, and lack of effective monitoring and evaluation mechanisms. We know from experience in other countries that failure to effectively deliver public services undermines the public’s confidence in government.

As the implementation of the key elements of the Constitution is taking shape, there seems to be a need to rigorously work on the right policy framework prior to moving to laws and regulations.

Security agents have been reforming, and are tackling the challenges that they face, but the level of insecurity, impunity and corruption remains a concern.

Despite these challenges, there are many opportunities, especially in the devolution process, which is taking services closer to the people and empowering them to participate in decisions that shape their lives and future.

There are also some progressive improvements in governance and accountability at the local level.

We also see prudent macroeconomic management making a difference in enabling Kenya to deal with internal and external shocks.

Moreover, the changes being implemented in the judiciary and security sectors have improved the expectations of Kenyans on justice and the rule of law.

Let us also recognize the impact of the regular dialogue between the government, the private sector, civil society and the development partners in resolving impediments to private sector growth.

This partnership is transformative and we have to continue working together to enable Kenya to transition from modest growth to high and sustainable prosperity in the medium to long term.

Way Forward

The time for Kenya to turn the tide is now. The government, at both national and county levels, needs to deepen policy reforms, reduce wastage in public spending and expand investments in infrastructure while working on improving the environment for doing business.

Progressive implementation of the constitution and investing more in roads, water supply, energy and infrastructure are critical for Kenya to attract private sector investment and enhance its regional competitiveness.

In this context, we are very impressed with the improvements at the port of Mombasa and with the measures envisaged to fast track customs clearance at the port as well as at border points.

Kenya will benefit from dealing with its governance and accountability issues that continue to pull down its ranking in the ease of Doing Business and other global benchmarks, and impact negatively on service delivery.

Strengthening institutions that support governance and accountability are an integral part of the Constitution.

Kenya has a reforming Judiciary and anti-corruption institutions, but more work needs to be done with respect to the pace and quality of delivery of judicial services, the capacity to prosecute and the application of rule of law to the people and the business community.

This should be complemented by open and free democratic space for civil society and the media to operate in.

Kenya also needs to improve financial management systems and enhance the capacity of the national and county governments for better planning and budgeting, procurement, implementation, and monitoring and evaluation of public goods and services.

The massive public wage bill, if not addressed, will continue to weigh heavily on the operations of counties and national public institutions, crowd-out needed public sector investment, and ultimately undermine service delivery and growth.

As part of efforts to address these outstanding issues, strong governance and transparency mechanisms should be integrated in the management of the newly discovered natural resources, including petroleum and minerals.

These emerging sectors have the potential to support sustainable growth and transformation, but only if growth is inclusive.

This is key to preventing or resolving conflicts at an early stage and for Kenya to avoid the natural resource curse that has befallen many natural resource-rich countries.

Kenya’s main asset is its people. A well-educated and healthy population is a key ingredient to long term growth and poverty alleviation.

The level of poverty remains too high for Kenya’s ambition and targeted measures to address poverty need to be undertaken.

For that we urgently require better statistics and knowledge on poverty and would urge the Government to prioritize the preparation of the next household survey.

Kenya’s development partners stand ready to provide the necessary financial, knowledge and advisory services support. We have committed ourselves to improving aid effectiveness by harmonizing our operations and aligning our support with Kenya’s development priorities.

Ms Diarietou Gaye is World Bank country director for Kenya. This is an edited version of her opening statement on behalf of the Development Partners Group during Kenya’s sixth development partnership forum where she is Co-Chair


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