Columnists

Kenya needs big, bold economic thinking

economy
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Summary

  • When forex dealers are reluctant to speak it is usually that we are entering a period where players will be more interested in short-term calculations.
  • In the coming weeks, the Monetary Policy Committee of the Central Bank of Kenya will have to apply more dexterity in managing the speculative forces that are bound to erupt especially as we approach the elections.

With a widening current account and pressure on our hard currency beginning to build up as a result of chunky external debt repayments coming due — and the country getting into a high-stakes general election— it should not surprise if we start seeing speculative pressures being brought to bear on the local currency.

If you go to buy dollars today, the likelihood is that you will see wide differences between the rates you are offered at the banking hall and the rates quoted on the open market.

We are in an environment of information asymmetry. I have made calls to several foreign exchange dealers and managers of treasury departments in the big banks to seek an explanation on these pressures on the shilling. The standard response has been tight lips. When forex dealers are reluctant to speak it is usually that we are entering a period where players will be more interested in short-term calculations.

In the coming weeks, the Monetary Policy Committee of the Central Bank of Kenya will have to apply more dexterity in managing the speculative forces that are bound to erupt especially as we approach the elections.

Yet we must also agree that the fundamentals don’t look good. Our exporting sectors have been underperforming for several years. Indeed, exports to GDP have been flat for several consecutive years.

Earnings from tea, coffee, tourism and horticulture have been consistently low. The recent collapse of the tourism industry has worsened the situation.

On the other hand, the value and quantity of imports have increased exponentially. Just about the only place where we are seeing significant growth in the exporting sector is remittances from the diaspora.

The big investment in infrastructure projects we implemented came with a huge increase in the demand for dollars to fund imports of steel and heavy machinery.

We have been exporting massive amounts of dollars to pay Chinese contractors and to service expensive syndicated loans and Eurobonds.

External factors have also come into play. Internationally, the indications are that the US dollar has been strengthening and continuing to exert pressures on currencies of all its trading partners, including Kenya.

Indeed, recent statistics now show that the US has become the third principal source of imports into Kenya. Regionally, the weak performance of our economy relative to its neighbours has led to appreciation of their currencies against the Kenya shilling.

We must put pressure on the presidential candidates to go beyond tabling lists of so-called flagship projects and to give us clear-costed plans of what they want to do.

We are at a point where what we need most is big, bold, economic thinking. In the air, you don’t feel or smell anticipation of new direction in economic policy. Indeed, economic policy making in this country has become lazy and unpredictable. Take that ritual of annual Budget Speech, for instance.

When you read through the Budget statements or even the budget policy statement, it’s basically an exercise at spending a few more billions for roads, ports, electricity, railways police housing and vehicles, and the Kenya Defence Forces and teachers salary.

Economic policy making has been turned into taxing and profligate spending with the IMF and the World Bank cheering on and telling us not to worry.

We know that agriculture remains the mainstay of the economy. But in terms of budgetary allocations, the lion’s share of spending will always go to mega projects ostensibly to improve infrastructure. Failure by institutions that manage the economy is part of the problem.

Public financial management is in a total mess both at the national and county levels. Our ministries and spending departments are not able to produce regular accounts. It is why we have difficulties with functioning integrated financial system (IFMIS) and why the Treasury is unable to implement the proposed Single Treasury Account.