Month: December 2015

My feature on an End of Year Special on Kenya’s Economy in 2015 by Citizen TV

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I was interviewed alongside Safaricom CEO Bob Collymore, Group CEO Equity Bank James Mwangi and KCB Group CEO Joshua Oigara.

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What defined fiscal and monetary policy in 2015?

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This article appeared in my weekly column in the Business Daily on January 3, 2016

This year has been an enlightening and tumultuous year for the Kenyan economy. Let’s take a look at fiscal policy and monetary policy action that defined the year.

In terms of fiscal policy, the Kenyan government continued on its trajectory on increasing planned expenditure, widening fiscal deficits and increasing borrowing. According to the IEA, the 2013/14 it was KES 1,640.9 billion, 2014/15 was KES 1,773.3 trillion and for 2015/16 it was a massive KES 2.2 trillion. These consistent increases in annual budgets are important for two reasons; firstly, it puts pressure on government to increase revenue generation yet government planned expenditure is increasing at a far higher rate than its ability its ability to generate revenue; in 2014/15 KRA managed to raise about KES 1.001 trillion– the budget for 2015/16 is double that.

Secondly, yearly increases in planned spending have been correlated by growing fiscal deficits as government finds itself unable to raise the funds for the annual budgets. Indeed, Treasury’s 2015/16 fiscal policy included a planned fiscal deficit of 8.7 percent of GDP, this has since shot up to about 12 percent due to borrowing for the SGR. These figures are well above Treasury’s own 5 percent fiscal deficit target. Another important development in this docket was the scrutiny government’s fiscal management underwent over the year particularly with regards to the Eurobond and allegations of corruption and the mismanagement of public funds. In short, the local and global perception of Kenya’s fiscal management practice took a beating this year.

(source: http://www.ambestenconsulting.es/images/FISCAL-emprendedor-final-ingles.jpg)

Monetary policy this year has been defined by managing the depreciation of the KES. Over the course of the year, the Kenya shilling had been tanking, reaching a high of 106 to the US dollar at one point. Current conditions make KES depreciation more anxiety inducing not only because of Kenya’s Current Account Deficit which remain substantial, the country is racking up foreign denominated debt. As per the monthly debt bulletin released by the Treasury in July 2015, Kenya’s public debt stood at KES 2.891.71 billion, 49.06 percent of the total debt is domestic debt while 50.94 percent is external debt. With high import bills and the constant pressure to meet foreign denominated debt obligations, CBK was aggressive in the action it to manage the depreciation.

(source: http://www.forextradeoracle.com/images/ForexTradeOracle.jpg)

One step the CBK took to manage KES depreciation was the direct sale of FX, which it did and led to a fall in FX reserves from USD 6.8 billion in late May to USD6.5 billion in July. Secondly, CBK fiddled with interest rates and raised the Central Bank Rate (CBR) to 10.0 percent in June 2015 from 8.50 percent, which had been stable since May 2013. CBK then again raised CBR from 10 percent to 11.5 percent in July 2015. However, raising interest rates tends to slow economic growth due to reduced investments and consumption. The conundrum here is that the performance of the Kenyan economy is likely to be negatively affected by a hike in interest rates; yet the Treasury’s initial rosy growth projection of up to 7 per cent this year was based on interest rates remaining stable at around the May 2013 levels. Remember that the Kenyan economy is already performing at the subpar level of overall growth of 4.9 percent thus far; interest rates hikes make the prospects of the rates of future GDP growth even grimmer. Finally, in order to manage KES depreciation, the CBK sought to drain excess liquidity from the market such as by offering KES 6 billion in repurchase agreements in June.

In terms of 2016, one can expect continued scrutiny of Kenya’s fiscal policy and management, particularly with regards to seeing if government will put a lid on spending, reduce borrowing and demonstrate accountability is fiscal management. With regards to monetary policy interest rate management is likely to preponderate as well as the management of inflation which has been rising recently.

Anzetse Were is a development economist; anzetsew@gmail.com.

You can read more on this topic in a comprehensive document I’ve written on Kenya’s fiscal and monetary policies>>https://www.academia.edu/19288762/Kenyas_Fiscal_and_Monetary_Policies_Is_government_getting_it_right

The Way Forward on the Eurobond

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This article first appeared in my weekly column with the Business Daily on December 21, 2015.

Since about October this year the country has been gripped by allegations that the proceeds for the Eurobond have been mismanaged. Opposition alleges that there is still KES 140 billion that has not been accounted for despite government having released a press statement detailing what they consider to be the hard facts of how the full amount of Eurobond was used. However, opposition insists that there is still something awry with this whole Eurobond issue. As I have stated in my previous column, it was absolutely essential that government ensured that Kenyans and global financial markets scrutinizing Kenya, viewed them as having handled the Eurobond proceeds with meticulous care and transparency. However, as is clear, government bungled and although serious allegations were presented in October, it is not until December that Treasury put together a coherent statement addressing the core concerns.

(source: http://apolloassetmanagement.co.ke/wp-content/uploads/2014/07/euro-bonds.jpg)

Whether one believes the proceeds of the Bond have been misused or not, the lax communication response from government means that the suspicions and allegations were allowed to gain momentum and tarnish the image of Kenyan fiscal management globally. Indeed, it can be certain that should government try to issue any more international bonds, they will be priced much higher as has been already seen in the recent CBK issue of a USD 300 million bond that was set at 11 percent; almost double what government got for the Eurobond in 2014. This issue here is that there still is not a general consensus that the Eurobond question has been answered, so beyond being treated to allegations and denials, what is the concrete way forward on this issue?

Firstly, in the press release by Treasury, government presented a list of Ministries, State Departments and other government offices to which they assert funds have been released. Clearly the most obvious action to take is to query whether indeed all government entities tabled as having received Eurobond funds did indeed receive them. If they did not receive the full funds as indicated on the Treasury statement then blame lies with the Treasury and hard questions must continue to be asked. However, if indeed proceeds have been transferred to these entities, then scrutiny should now shift from Treasury to the relevant state offices.

 

(source: http://www.businessdailyafrica.com/image/view/-/2352280/medRes/767328/-/maxw/600/-/wqpelcz/-/treasury.jpg)

Secondly, the Eurobond has to be used for development expenditure and not a cent ought to be directed to recurrent expenditure. I have already noted in past columns the propensity government has for using national budgets for recurrent expenditure; this can be a difficult habit to break. It is therefore crucial that independent parties track the use of the Eurobond and ensure that all of it is used for development.

Finally, opposition is adamant that not all of the Eurobond has been accounted for and that there is a hole of about KES 140 billion. It now time for opposition to stop making general allegations but instead present a clear and detailed statement on what they view to be the  key gaps in the government response, present evidence on any allegations of the misuse of funds, and table the key questions government has not addressed and ought to answer. This document should then be published for all Kenyans and international parties to view and of course opposition should present this statement to government. Doing so will allow all parties interested in this matter to more fully understand what outstanding concerns exist. From there any unanswered queries ought to be addressed by government a failure of which then warrants the needs for continued pressure be placed on government to explain what transpired.

Anzetse Were is a development economist; anzetsew@gmail.com

Interview with CNBC Africa on Kenya’s Fiscal and Monetary POlicies

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Kenya’s monetary management has been under scrutiny for mismanagement due to poor strategies and policies to guide spending. I joining CNBC Africa to discuss more on Kenya’s fiscal and monetary policies.

http://www.cnbcafrica.com/video/?bctid=4649814496001

The foundation of my insights are from a piece I wrote on Kenya’s fiscal and monetary policies>> https://www.academia.edu/19288762/Kenyas_Fiscal_and_Monetary_Policies_Is_government_getting_it_right

Interview with CNBC Africa on the sustainability of Kenya’s debt: Sept 11, 2015

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The proportion of external debt has become a major talking point in Kenya, especially after it crossed the psychological KSh1 trillion mark a few months ago. It has since risen to about Sh1.3 trillion. Last year, the Treasury raised the external debt ceiling to Sh2.5 trillion. Is there a cause of concern over the debt level? I join CNBC Africa for more.

http://www.cnbcafrica.com/video/?bctid=4478058633001

 

Interview with CNBC Africa on Implications of Teacher’s pay hike: Sept 4, 2015

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Following a Supreme Court ruling, Kenyan teachers are set to receive a 50-60 per cent salary increment with the bone of contention being the implementation as the government argues that it simply does not have that kind of money; this afternoon we question the mismatch between Kenya’s fiscal and monetary policy. I join CNBC Africa for more.

http://www.cnbcafrica.com/video/?bctid=4462983099001

 

 

What Africa should be pushing for in the WTO talks

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This article first appeared in my weekly column with the Business Daily on December 13, 2015.

The World Trade Organisation (WTO) Ministerial Summit due to be held in Nairobi this week is important to Kenya for two reasons. Firstly, it’s the first WTO Summit to be held in Africa and secondly, it’s the first time the Summit is happened after what is largely considered to the failure that was the Doha round back in 2008. So what should Kenya, and indeed Africa, be pushing for during this round?

Africa should firstly, use this round to push for the reclassification of countries such as India, China and Brazil that still fall under the docket of ‘developing’ countries. Currently, such countries essentially are lumped together with Africa in negotiations despite the fact that over the past seven years these countries have significantly ramped up their presence and role in global trade. China’s share of global trade stands at about 12 percent, India stands at 2 percent and Brazil stands at 1.2 percent. Although Africa’s share of global trade is 3.5 percent that is a share at continental level; Kenya’s share of global trade is 0.03 percent. Therefore, Africa as a bloc should use this Summit as an opportunity to push for a more sophisticated classification of countries where the percentage of contribution to world trade preponderates rather that GDP per capita.

(source:http://thumbnails.visually.netdna-cdn.com/world-commodities-map-africa_536becb7083f7_w670.png)

Secondly, Africa should continue to build pressure with regards to agricultural concerns. The main issue of contention African countries, Kenya included, have with current trade realities is that governments of developed economies still grant substantial subsidies to their farmers creating trade barriers to agricultural products from Kenya and other African countries. It is important that Africa continue to push for the removal of tariff and non-tariff barriers for agricultural commodities as these are a significant forex source for many African countries. But it should be noted that while African countries are likely to push on the agricultural subsidies issue, developed economies are unlikely to agree and there will be another impasse. This is clearly because if Africa’s request is to be honoured, the governments of developed economies will essentially be telling an important portion of their electorate, namely farmers, that the demands of African governments are more important than the welfare of their electorate; this is unlikely to happen.

Another issue pertinent to Africa is the issue of bolstering returns from natural resources in relevant exporting countries. Bear in mind that according to WTO the merchandise trade values in 2014 revealed a paucity of trade flows in natural resource commodities (such as fuels and metals) from exporting regions such as Africa. In fact the continent experienced a 7.6% decline in natural resource exports as lower commodity prices cut into export revenues. Thus again here the story is an old one; Africa has to push for a greater role in producing finished goods from raw materials as finished goods are not as susceptible to commodity price fluctuations.

The final point really has more to do with the work that Kenya and East Africa in general should implement if the region’s economy is to have a larger share of global trade. Firstly, the region should, together, devise a strategy through which they can bolster their share of exports globally. Secondly, although East Africa is one of the fastest growing regions in the world, tariff and non- tariff barriers such as over-stretched ports and time consuming customs and border operations hamper the ability of the region to play a strong role in global exports. Finally, there is a need for the region to hone into compliance to global technical standards as doing so will ease the region’s access to global markets.

Anzetse Were is a development economist; anzetsew@gmail.com