EDITORIAL: CBK independence is not negotiable

The CBK building in Nairobi. FILE PHOTO | NMG 

By EDITORIAL
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There is no doubt that the Treasury—by implication the Executive—has made a huge mess of fiscal management. Where it should have been more concerned with burgeoning debt and widening deficit,
it has engaged in massive expenditure without matching resources.

That has seen the total debt hit 62 percent of GDP within a short time, and debt payment spike over to half the ordinary revenue.

This has come even as the executive does little to spur important sectors of the economy than can help both exports and imports. In the middle of all this economic misalignment, the monetary side of the equation has been fighting to balance the economy very much in vain.

It has often correctly cited the supply side of the economy as the problem. In short, it is the failure of the macroeconomic side of the coin that has landed us in a ditch.

To be sure, the situation has a long history. In the early 1990s, the executive embarked in a heinous scheme later known as Goldenberg that cost the taxpayers billions.

The consequences of the fiscal indiscipline are still being felt in one way or the other, with courts being one of the most active theaters.

Unfortunately, the Central Bank of Kenya (CBK) was a willing accomplice, turning on the printers to pay for the fraudulent export compensation and issuing bizarrely priced short-tenor securities that fed the opportunistic banking industry.

It is this situation that led to legislation restricting State borrowing from CBK to just five percent of the last audited expenditure. That has not completely ushered in complete independence of the central bank and it has often played along or cowered off under pressure from the government. Indeed, the current Governor Patrick Njoroge has hinted things are only beginning to look up with change of regime.

Nevertheless, he is still complaining that the Treasury is pushing CBK to surrender surpluses as well as securities held. He rightly argues that such pressure amounts to issuance of fiat money.

While the full extent of the dispute is not completely clear, it is heartwarming to see CBK asserting itself, which will hopefully save the country from crowding out the real economy from banking halls and tame State appetite for debt. We are on the side of an independent CBK.