Uhuru starts wearing EAC’s big boots

President Uhuru Kenyatta (right) with South Sudan President Salva Kiir during a visit to Juba. All eyes are on Mr Kenyatta to help end the South Sudan crisis. AF

By Mohamed Wehliye

In Summary

• Christine Lagarde’s visit comes with no bag of goodies, but policies that constrain the economy.

After not hearing from them much during the Kibaki administration, the International Monetary Fund (IMF) is back in town. IMF managing director Christine Lagarde is in Nairobi for talks on “a new partnership with the government”.

One of the most notable achievements of the Kibaki administration is that it made Kenya less dependent on donor funding. Most of the development that the country witnessed in the last decade, especially in infrastructure, can be directly attributed to local resources and not to a foreign taxpayer or a donor government.

This decision, supported by a decent economic growth rate in the early years of the administration has seen the country become the most financially autonomous in the region.

Making tax revenue a major source of government finances means even if donors didn’t honour the little they give us, it would not adversely affect government operations and development plans.

Thanks largely to successful economic programmes developed by the likes of Joseph Kinyua (then PS Treasury), domestic resources from taxes and local financial institutions financed most of the budget and hence the reason why we have heard less from Ms Lagarde and company during this period.

But like most countries, and because of the global financial crisis, post-election violence, drought and high fertiliser prices, the government in 2008 sought help from the IMF, world’s lender of last resort.

The executive board of the fund approved a three-year arrangement under the Extended Credit Facility (ECF) for Kenya in an amount about $509 million of which $101 million was released immediately.

The facility was aimed at protecting Kenya’s external position, while allowing a gradual fiscal adjustment. It was intended to help address balance-of-payments financing needs and provide a reserve cushion to help the country deal with adverse shocks.

As they say, there is no free lunch and IMF’s help always comes with a lot of strings attached. One of the conditionality as is always the case with IMF help is to steer a country’s monetary policy towards a direction that is not beneficial to its citizens but one that is intended to protect its own interests and that of foreign creditors.

The IMF approach to central banking unfortunately has little regard for economic growth or employment generation; instead, it promotes formal ‘inflation-targeting’, in which keeping a low rate of inflation; in the low single digits, is an obsession and is the dominant target of monetary policy.

This is in contrast to the quantitative tools often used by central banks free of IMF conditionality and successfully implemented during the recent economic crisis which involves credit allocation methods and other ways to direct credit to priority economic goals.

As Ms Lagarde pays us a visit, perhaps to ‘programme us’ for the little help she gave us, President Uhuru Kenyatta and his administration should be very careful with how they engage her institution.

IMF help should be sought only when necessary as Kibaki did. After all, the IMF is a lender of last, not first resort. We don’t want to return to the days when the fund literally ran the economic affairs of this nation to the detriment of its citizens.

We should always remember that it is not IMF’s primary concern to worry about our economic growth needs or our Vision 2030 targets.

Its major concern is whether it and other foreign creditors will get back what they lend to us. It will give you two per cent of your budget but put conditions that would give it 100 per cent control.