Columnists

Much will be expected of new CBK governor

The ongoing search for the successor of the Central Bank governor has an important monetary policy implication.

The successful candidate will oversee the implementation of constitutional imperatives on financial matters. He or she will be part of an elite team that will manage and navigate Kenya’s economic take-off and ensure its sustainability.

Therefore, this is one recruitment that must be handled with care and sobriety.

The new governor’s convictions will lay the foundation for Kenya’s liberty and inclusive prosperity based on economic freedom.

These convictions emanate from life experiences and economic philosophies of each candidate. Specifically, successful candidate must possess solid technical training in macroeconomics. But such technical training alone is not sufficient.

It must be complemented by demonstration of good intuition that is informed by a profound understanding of public policy matters from local, regional and international perspectives.

To guarantee the achievement of policy goal of inclusivity of economic growth, the new governor must be a disciple of the gospel of economic freedom according to the Constitution. The Constitution espouses the consumer sovereignty doctrine.

The doctrine holds that effective consumer choices should solely determine what goods and services that a given economy produces and at what price.

An effective consumer choice encompasses two principles: availability of options of goods and services in the market place and the ability of consumers to choose freely from these options.

Historically, Kenya’s monetary policy had been obsessively aimed at taming inflation with notable success.

But the achievement of this policy goal has come with the enormous cost of systematic credit starvation to the private sector, which has relegated Kenya’s economic growth to single digit.

The consequences of the decimal economic growth rate has been inability to create enough jobs for the youth, who constitute 75 per cent of the population. Moreover, out of 2,000 Kenyans, only one has a mortgage.

Evidently, notwithstanding the on-going financial liberalisation reforms that started in the 1990s, a high interest rate spread has stubbornly persisted.

High cost of credit has locked millions of investors out of the credit market hence denying them opportunities to engage in productive economic activities.

For instance, high cost of credit has been identified as major contributor to the persistence of the informality of small and medium enterprises.

Furthermore, the stagnation of the manufacturing sector and its declining contribution to the gross domestic product has been attributed to high credit costs, among other factors.

The persistence of high cost of credit is attributable to credit market failure. We cannot envisage double digit economic growth if so few Kenyans carry a mortgage.

It is inconceivable to entertain ideas of becoming an industrialised country when the rate of contribution of the manufacturing sector is declining.

In conclusion, in the leadership of the Central Bank, we are looking for a new prophet for a new season. It is a season of ululation, of great expectation following the constitutional rebirth of our nation.

However, this sense of renewal is haunted by our past that denied half the population economic freedom.

Therefore, the new governor must possess the right technical training in macroeconomics complemented by intuitive judgment of policies. He or she must also be an ardent devotee of economic freedom.

Prof Kieyah is a principal policy analyst at KIPPRA. Views expressed are personal.