Kenya warming up to more diplomatic IMF

By WINSLEY MASESE

KENYA: There was a time in Kenya’s history when a visit by the three musketeers from the Bretton Woods Institutions meant that the economy was on the deathbed and needed some radical financial surgery.

It was a time when the country’s economy was in the doldrums and Structural Adjustment Programmes (SAPs) were the prescribed insulin to see its recovery. This was regardless of the harm SAPs caused to the economy’s metabolism.

The Bretton Woods bitter pill came with the idea of cost sharing in education and health among other critical public service, which did not spare the poor and vulnerable households that heavily relied on government coffers. It reminds one of those days when you had to pay through your nose to access some services amid rampant corruption.

More expectations

In its place today, is a government exploring investment angling towards the East and not the traditional West. In turn, the three musketeers have since been replaced with diplomacy and aggressive marketing policies.

However, the recent visit of the International Monetary Fund (IMF) chief, Christine Lagarde, is still viewed with some skeptism in the aftermath of the controversial SAPs.

Lagarde, however, interestingly approached the Kenyan situation cautiously, saying that IMF is a partner and not the traditional lender. Naturally, when you go through a child’s report form, you do not start by looking at what he or she has performed dismally. Rather, you start by commending and go on to point out the areas of weaknesses.

This is the approach Lagarde took, the same strategy used by the institution’s director of African development, Antoinette Sayeh, when she visited the country mid-September, last year.

Lagarde commended that the “country’s external and fiscal position is now stronger, inflation has been tamed and its growth is solid and will continue to improve in the future.”  This is totally a different approach from the hazy lecture notes the economy received from the big boys in the 80s and 90s.

Aly-Khan Satchu, the Chief Executive at Rich Management agrees that the position by IMF has drastically changed in the 21st Century. “It is not the institution that came with the infamous SAPs in the late 20th Century, but its re-engineering has gathered pace under the leadership of Lagarde,” he explained.

During a recent visit to Nigeria, Lagarde herself admitted that the IMF had in the past made mistakes. She accepted that the world body made mistakes in the past by designing conditionalities for countries receiving loans.

“I have to say IMF is a different institution from what I knew many years ago. It is a different institution because it was known for lending money and designing conditionality ... and imposing programmes. In doing so in the past, it made mistakes.”

Public debts

Economic reforms were initiated as part of an agreement between Kenya and the IMF. The key objectives of the economic reforms in the country focused on the reduction of public debts, reduction of the budget deficits, controlling of inflation, tax reforms, credit policy reforms, investment incentives, privatisation and easier trade policies.

Nevertheless, a highly growing population and the unstable political situation in the region then have been major impediments to immediately reaping the benefits of IMF-introduced economic reforms.

Aly-Khan reckons that the method of delivery of the institution’s message is now kinder, but still remains clear for anyone to see. In her Speech on devolution, Lagarde said: “Now is a good time to commend Kenya on its performance. But this is not the time for complacency. It is imperative that devolution is done right. That means spending needs to remain within the available envelope of public resources.”

Lagarde’s visit comes at a time when a recent report by the Office of the Controller of Budget indicated that some counties are ‘eating the cow instead of feeding it to get milk.’  The high recurrent expenditures is one of thorny issues that had dogged the country during the 80s and 90s and forced the then administration into cost cutting measures, including the notorious SAPs.

The surge in public wage bill is certainly going to be a major headache for Kenyan policy makers.

 Aly-Khan believes that by coming out to point out some of the economic challenges the country is going though and how to manage them in a diplomatic manner is to suggest that IMF has established a trusted Consigliere Position and is seeking to maintain that.

 He further believes efforts by the institution to come into its aid during emergency periods are enough evidence that it is a trusted friend.

“The IMF helped us during challenging times and Lagarde has shown wiliness to continue assisting the country, which is most welcomed,” said Aly-Khan. He believes that the recent robust growth of the Kenyan can be a success story for the troubled IMF. Kenya can be an example of how the IMF can foster strong, stable economies that are productive members of the global economy. Lagarde spoke glowingly about Kenya’s efforts to improve the economy, largely driven by macroeconomic reforms initiated in the country.

For example, Kenya recorded its highest lending rate at 84.7 in 1993, when the country was facing economic headwinds.

In 2011, the cost of basic commodities shoot through the roof, as inflation stood at 19.32. Central Bank of Kenya responded swiftly and saw its Central Bank Rates raised to 18 per cent, in an effort to mop up excess liquidity in circulation.

Revenue mobilisation

 “The quality of public spending needs to improve by providing more resources to infrastructure investment and social programmes, and by strengthening revenue mobilisation and transparency, especially in the management of natural resource wealth,” explained Lagarde.

This is the same message delivered by Sayeh last year. Seyeh this time round sat next to Lagarde during the press conference held at the Serena Hotel.

“If anything, now is the time to redouble efforts to build upon the foundations of success. And a key task for the public finances… is to raise the efficiency and quality of public spending,” reckoned Sayeh during his visit.

Sayeh went on to warn that the ongoing fiscal decentralisation would provide an opportunity to improve accountability and the quality of service delivery, but reckoned that devolved system would need to be well managed so as to guard against the risk of excessive spending.

And when Article 4, led by the institution’s negotiators visit Kenya in March to review policies and economic achievement so far registered, it would be interesting to see the approach adopted by the institution.