Will State accept IMF mission proposals?

Opinion and Analysis

The shilling recovered some of its losses on Tuesday after CBK sold an undisclosed amount of dollars to the interbank market. PHOTO | FILE 

By JAINDI KISERO, jkisero@ke.nationmedia.com

I gather that a team from the International Monetary Fund (IMF) is in town to review the performance of the government under conditions attached to a “blended stand-by arrangement”, which we signed with them several months ago.

There was a time when the visit of an IMF mission to Kenya would make the headlines of daily newspapers. These days, however, IMF officials visit Nairobi and leave town without scant mention in the Press.

It is a reflection of the diminishing political influence of the Bretton Woods institution in the political economy of Kenya.

We tried all those structural adjustment policies in the Daniel arap Moi years when we were more or less in an IMF-imposed economic straitjacket, forced to implement conditions that turned out to be ineffective in terms of stimulating growth.

Indeed, if there was a big lesson we learnt from the Moi years, it was that short-term techniques of managing economic difficulties – spending cuts, monetary tightening and privatisation – could not kick-start growth.

We learnt the hard way that while cutting expenditure made sense in terms of text book economics, it also led to reduction in vaccination programmes, more polluted water supplies, which in turn allowed diseases to spread much faster. It caused the collapse of rural agricultural extension programmes.

Public spending cuts also led to mass redundancies and to the death of subsidised fertiliser programmes.

Indeed, this economy only started registering growth when Mwai Kibaki came to the scene with his policies of massive government spending on infrastructure – supported by cheap credit and heavy borrowing.

The impact on the macro economy was immediate. Unprecedented high tax collections by the Kenya Revenue Authority, rising share and property prices and phenomenal growth in the financial services sector.

By 2007, the economy under Kibaki had produced a seven per cent GDP growth rate. President Uhuru Kenyatta has more or less adopted the principles of Kibakinomics.

But the riddle is that even with low oil prices, the policies of the Jubilee government are not producing the kick-start to the economy that we had anticipated.

Indeed, it would appear that the key survival mechanisms of the Kibaki years – high infrastructure spending and credit expansion – are now becoming relatively exhausted.

While heavy government borrowing worked under Kibaki, we are at a point where more spending by the government is now beginning to cause debt management problems.

Indeed, the cost of servicing domestic debt has increased unprecedentedly. And, with a depreciating exchange rate, the cost of servicing the Euro bond we contracted last year is bound to cause even more pressure.

On the external front, we have a burgeoning external account gap that has served to keep our currency permanently under pressure.
 Methinks that the massive expansion of the political sector, a much bigger National Assembly, a completely new Senate, big spending governors and county assemblies are part of the problem.

The rapid expansion of the budgets of the Judiciary, Parliament and the mushrooming constitutional offices have shifted the balance of public expenditure from development spending to consumption.

In the private sector, we are not seeing more risk-taking entrepreneurship. Indeed, today’s high property prices and the huge profits being made in the financial sector are but a reflection of a growing culture of risk aversion.

You still see reluctance by companies to go to capital markets to raise long term debt or even share capital for investment. Which brings me back to the IMF mission. I have not seen their agenda.

But I am sure that they will push the government to drop the Sovereign Wealth Fund Bill that was produced by the Abdikadir Mohamed -led parastatal reform committee.

They will also put pressure on the committee to drop the idea of the proposed Government Investment Corporation. They will also push for faster implementation of the capital gains tax.

I don’t think that they will agree with the Treasury on the revenue projections on the programme budget.

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