In Uhuru Kenyatta, Bretton Woods find a great friend and relevance

On 10 August, 2006, traffic officers flagged down a luxury grey Toyota Land Cruiser with United Nations number plates near Kabete, Kiambu County.

It later turned out that the passenger on the left-hand side of the car was Mr Colin Bruce, the World Bank Country Director in Kenya.

A spat ensued with police detaining Mr Bruce for hours until a former head of the defunct Kenya Anti-Corruption Commission, Aaron Ringera, intervened.

Mr Bruce accused police of seeking a bribe while the latter maintained that all they were asking for was a cash bail.

The law enforcers would later issue a stern statement criticising the reaction of Mr Bruce, terming it unfortunate and his accusing the police of asking for a bribe in bad taste.

“The Kenya Police wishes to reiterate that obedience of the law is not optional; it is a mandatory requirement.

Mr Colin Bruce should not be under the illusion that World Bank officials are exempt from observing Kenyan laws,” the police statement read.

After commending the “five traffic police officers under Corporal Patrick Wanyonyi for their professionalism, police commissioner noted that “Mr Colin Bruce’s driver would be prosecuted before a competent court in accordance with the law.”

NOT THE FIRST TIME

Across the continent, in the UK, The Guardian newspaper noted that the incident was “neither the first, nor perhaps the scariest, to have afflicted a Kenya World Bank chief.

Last year (2005) Mr Bruce’s predecessor, Makhtar Diop, was hosting a party at the home he was renting from the president’s family.

Mr Kibaki’s wife, Lucy, who is known for her hot temper, climbed out of bed to gatecrash the party and demanded that the music be turned off.

‘You must have had a very bad mother if you do something like this,’ she told Mr Diop before stomping off.

Well, Mr Diop has since returned to Kenya as the World Bank Vice-President for the Africa region.

The two events were perhaps what would summarise former President Mwai Kibaki’s regime stance on the Bretton Woods institutions and other donors.

This would later be informed by his clarion call urging taxpayers to honour taxes to “free” the country — Lipa ushuru, tujitegemee a statement that would later be adopted by the Kenya Revenue Authority as it slogan.

Ties between Mr Kibaki and the two institutions were almost nonexistent and any contact with his government was through the Ministry of Finance and the Central Bank of Kenya.

CHANGE CHANGING POLICY

With the change of government, however, this is slowly changing and the two institutions are regaining their prominence in agenda-setting for the nation.

Two weeks ago, while opening the new World Bank building in Nairobi’s Upper Hill, President Uhuru Kenyatta talked glowingly about the lender as well as the International Monetary Fund.

Interestingly, just a week before, his deputy, William Ruto, presided over the release of Kenya’s outlook review report, pushing the event to the top of the news agenda.

During Mr Kibaki’s reign, such functions were carried out at low profile forums mostly at the World Bank head offices in Nairobi.

Two factors are said to have played the change of tune in Nairobi. One is purely economic while the other is President Kenyatta’s top advisors.

Economists are reading the new-found charm between the government and the financial institutions as being driven by different circumstances that confront the former.

A fast-rising government debt and widening trade imbalance has forced Kenya to embrace the Bretton Woods institutions.

“It’s not a dramatic shift but it is significant,” said Mr Robert Shaw, an economic analyst.

“The warning signs have always been there, with government expenditure rising significantly in recent years and the trade imbalance widening.

What has happened is that the Kenyatta government has realised it needs to deal with these issues and is being proactive, unlike the former regime,” he said.

UNCOMFORTABLE DECISIONS

Mr Shaw said the newfound love is a product of uncomfortable decisions the government will have to make, noting that signs have already appeared that some measures have started being taken, particularly in containing the rising wage bill.

“The government has no option and has to make hard choices. From July, there has been a discernible concerted effort to contain government expenditure.

The government is more conscious and slow in paying,” said Mr Shaw.

Recently, the government indicated that it would retrench 100,000 public servants to check costs and has made a commitment to reduce the wage bill from 13 per cent to the globally accepted 7 per cent of the GDP — nudged by the lenders.

“If Kenya does not manage the national debt better, we will be in trouble,” warns Mr Gitau Githogo, an economist.

Other experts say with increased spending on mega projects like the Sh1.2 trillion Mombasa-Malaba standard gauge railway and other ongoing projects carried over from Kibaki’s government, it is prudent to be in good books with the lenders.

“The government has huge appetite for spending and is also expansionary.

With this reality, the public debt has kept rising and having the IMF and the World Bank on your side is not bad.

It is good, particularly in funding long-term projects. What would be bad is funding recurrent expenditure,” said Dr Joy Kiiru, an economics lecturer at the University of Nairobi’s School of Business Studies.

CUTBACK ON DOLLARS

She said increased revenue collection during Kibaki’s regime provided the government with leverage of funding the national budget from local resources up to 95 per cent.

Dr Kiiru said in the 1990s, the government heavily relied on external borrowing to fund its business, therefore, giving the two institutions great say in how the economy was run.  

Mr Githogo said the cutback on dollars released by the US government has triggered an upswing in interest rates on international loans.

“President Obama pumped cash into the economy to stimulate growth. There has been a cut-back on this, which has translated into higher interest rates in international borrowing.

An increase of even 1 per cent in interest rates is a huge burden to the economy,” noted Mr Githogo.

Countries like Kenya that depend on dollar-denominated transactions and are on a tight leash have to embrace Bretton Woods institutions that offer concessionary loans.

Decline in international commodity prices like tea and coffee that provide a huge part of the foreign exchange worsens the situation.

Tourism has been hurt by terror attacks, stifling growth.

“The Central Bank is fixated on maintaining the shilling exchange with dollar at Sh85 by occasionally releasing forex but there is no corresponding increase in inflows.

This calls for the IMF to be on stand-by, ready to step in (when required)” said Mr Githogo.

Increased spending due to the devolved government, experts say, offers both challenges in mobilising funds and opportunities if well exploited. Dr Kiiru said the two lenders might be angling to make business as well.

THE PRESIDENT KNOWS FINANCE

President Kenyatta, experts say, has insider information on government, spending having been a Finance minister, hence is more conversant with the urgency of dealing with the rising national debt.

Thawing of relations between the government and the international lenders is also seen by some as being nudged by the current Treasury officials who served at the World Bank and the International Monetary Fund.

At various stages of their careers, the National Treasury Cabinet Secretary, Henry Rotich, Principal Secretary Kamau Thugge, and Chief-of-Staff Joseph Kinyua worked with the two institutions and could be influencing the relationship.

LONG_TERM COMMITMENT

President Kenyatta said the World Bank remained a great partner for Kenya in its development goals and the new building was testimony of the partnership and confidence the bank has in the country.

“It is also a long-term commitment as we work together to accomplish our shared vision to end poverty.

It is also a clear indication that the bank is putting into action the new World Bank strategy as a solutions bank under the theme: ‘One Group, Two Goals’.”

The World Bank Group’s investment in Kenya has reached Sh1 trillion since independence.

The major ones are in infrastructure including transport, water and sanitation, energy, airports, and urban development.

Others are in agribusiness, health, information and communication technology, trade and transport facilitation, social protection, and climate resilience and adaptation programmes.

“The World Bank Group continues to provide valuable advisory services and share global best practice in areas such as public-private partnerships, financial services, open data and capital markets development,” he said. 

The building that is jointly owned by the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) will also host the World Bank’s global centre on conflict, security, and development.

It will also be the centre of IFC’s regional operations for East and Southern Africa and host the Sudan and Somalia country director’s office, the regional controller’s office, and that of the International Monetary Fund.