A frank lecture to MPS on the state of the economy by Central Bank of Kenya (CBK) Governor, Patrick Njoroge last week failed to hit home as legislators turned to demand higher perks, retraining constituency kitty and risking the country’s hard-won fight against money laundering.
In his presentation during an induction session with the legislators, Dr Njoroge drew a stark picture of the precarious Kenyan economy, which he illustrated in a tiny dhow weighed down an anchor of debt, pending bills, inflation, corruption, and weak institutions.
Voyage Mv Kenya, Dr Njoroge said could only take off to prosperous growth, manageable living costs, good education healthcare, and infrastructure if the country toes the line of disciplined expenditure, and financial innovation and leave the externalities to God in the hope he will blow wind in our sail.
His words may have hit a brick wall as MPs' first order of business has been demanding increased spending to cater for expensive petrol for their fuel guzzlers even when just crossing the streets in Nairobi and Kiambu, retention of the constituency development kitty, and increasing reporting limits on cash transactions to Sh10 million.
“A strong recovery is underway although global shocks are creating new spending needs and adding to inflation pressures. Kenya’s programme is delivering the resilience, helping navigate these global shocks,” the CBK presentation read.
The regulator chart shows banks and businesses are cautiously optimistic about watching the new administration and how it plans to address the economic crisis and sustain the 5.4 per cent projected growth.
The first issue highlighted was inflation with food inflation at 15.3 per cent and fuel inflation at 8.6 per cent before factoring in the end of fuel subsidies and the Kenya Revenue Authority adjustment of excise duty to price increases.
There seems to be very little the State or MPs can do here especially since part of the inflation is being driven by external shocks where global commodity prices have skyrocketed along depreciation of the Kenyan shilling.
Dr Njoroge told MPs global inflation was tapering palm oil prices have climbed down from a high of $1717 (Sh207,108.61) per tonne in May to $1026(Sh 123,758.55) in August, fertiliser prices have reduced from a high of $954 (Sh115,086.67) in April to $749 (Sh90,358.83) before the government introduced subsidised prices.
Oil prices, which are the biggest driver of inflation and currency drops have also fallen below the 100-dollar mark to $93 (Sh11,219.45) a barrel in September from a high of $130.2 (Sh15,706.35) in March.
CBK also gave MPs’ Kenya’s balance sheet with revenues on a decline, which has failed to meet expenditure driving up public debt.
The graphics revealed that Kenya was back in 2003 after decades of economic mismanagement by the President Daniel Moi regime when debt to GDP stood at 64.1 per cent.
But there was a lesson here, CBK said in just 10 years President Mwai Kibaki government had reduced debt to GDP to 38 per cent before President Uhuru Kenyatta blew the debt to Sh8.6 trillion expected to reach 71 per cent of GDP in the financial year 2021/2022-2022/2023.
He told legislators the use of 57 per cent of tax revenues to pay the country's debt was not sustainable and they should reflect that the Kibaki government was only using 17 per cent of the revenue son debt back in 2012.
But it is not just all thorned, the financial sector is powering the country despite the interest rate hikes, high default rates, and the government crowding out the private sector through borrowing heavily in the domestic market.
Banks have been able to push double-digit growth in private sector loans since March this week albeit with a dip in August during the election has ensured the economy is getting the lubrication needed to move.
The lending is geared towards Covid-19 recovery, environment, and climate goals, and reviving agricultural output.
The lenders have helped fund local production that has seen exports grow in nearly all sectors save for horticulture.
Coffee, tea, manufacturing, raw materials, chemicals, and re-exports all grew to help to earn the necessary dollars to fund imports which had become more expensive, especially oil.
The oil bill doubled to $4.9 billion (Sh591.11billion) over 12 months from $2.7 billion (Sh325.7billion) in a similar period last year while chemicals, manufactured goods, machinery, and transport edged up marginally higher.
The import bills would have been hard to bear without improved diaspora remittances that have grown to a historic high of $3.9 billion (Sh470,46 billion) in 2022 supported by the highest tourist numbers over the last two years. Tourist arrivals, however, are still shy of the pre-pandemic levels of 2019.
The inflows have helped Kenya manage its currency at a time the shilling has been decimated by the dollar which is currently at a 20-year high.
CBK said Kenya’s 120 units against the greenback is just a 6.2 per cent decline that is way lower than Ghana which has seen the Cedi shed 62.5 per cent to the k US currency.
The CBK governor concluded his presentation by asking MPs to support his legislative agenda by passing a microfinance bill and helping tighten money laundering loopholes by designating lawyers as reporting persons which have been challenged in court and strengthening the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA).
This, the governor said, would ensure Kenya remains the regional financial hub attracting much-needed investment, and dollar flows that can blow Voyage Mv Kenya out of turbulent waters.
But MPs turned a blind eye and want the requirement for bank customers to disclose the source, intended use, and beneficiaries when depositing and withdrawing cash raised above Sh10 million even as the banking regulator called for caution.
Imenti Central MP Moses Nguchine said they agreed at a meeting chaired by President William Ruto in Naivasha that the limit should be pegged at Sh10 million and said this is what they will push for while accusing the CBK of spearheading anti-business policies.
In 2010, Kenya was placed on the watchdog’s "grey list" of high-risk countries failing to combat money laundering, drug trafficking, corruption, and terrorism.
Kenya was taken off the Financial Action Task Force (FATF) 2014 list of countries at high risk for money laundering and terrorist financing after the country made considerable steps to safeguard financial systems.
Dr Njoroge said financial institutions will continue with their reporting obligations to the Financial Reporting Centre.
“We need to make it better but at the same time ensure that we do not erode or reverse the gains made in checking illicit financial flows. The requirement is not a punishment. We need people to do good business and not those supported by illicit financial flows,” Dr Njoroge said.
The MPs also spent hours trying to force SRC to review their perks upwards and have insisted on keeping CDF despite the Supreme Court ruling the kitty illegal.
The Treasury allocated the NG-CDF board Sh44.3 billion in the current financial year to exclusively finance projects under the functions of the national government.
The NG-CDF board has revealed that the least allocation to a constituency with three wards will be Sh131 million while the highest with eight wards will receive Sh165.7 million.