Africa, Economy & Trade, Headlines

ECONOMY-KENYA: Budget Stirs Controversy

Joyce Mulama

NAIROBI, Jun 12 2004 (IPS) - Hopes of creating a debt-free Kenya seem to have been dashed following an announcement this week by government to resort to borrowing to meet its budget deficit of about 730 million dollars.

The government has raised only 4.9 billion dollar, out of a total budget proposal of about 5.6 billion dollars, said finance minister David Mwiraria when presenting his budget in parliament on June 10.

The government expects to close this gap by borrowing around 448 million dollars from the donor community and about 282 million dollars from the domestic market.

Civil society activists have criticised the plan to “borrow” from the donors. They argue that it will throw Kenya into a deeper debt crisis. “The government is continuing with the habit of borrowing while public debt is rising, considering the huge interests that accompany the loans,” Ababu Namwamba of the Chambers of Justice, a non-governmental organisation, told IPS in an interview.

“If this trend continues, Kenya will be unable to escape from the debt web,” Namwamba warned. His organisation, based in Kenya’s capital Nairobi, is involved in the global anti-debt campaign.

The East African country has a debt burden of 7.8 billion dollars, Eunice Muthamia, a spokeswoman at the Ministry of Finance told IPS. Most of this debt is owed to external financiers. In an interview with IPS (June 11) Muthamia said the government had already repaid about 237 million dollars of Kenya’s external debt, including 68 million dollars in interest rates.

Critics have often claimed that the government has been appeasing the donors to attract funding. “The Bretton Woods Institutions are considered opinion setters. Reaching an agreement with them is necessary for attracting foreign direct investments,” Mwiraria noted.

Some economists fear that seeking donor support may subject Kenya to the whims and mercy of the international financial institutions. “This means that the government has to take on board anything pushed down their throats by the donors. The authorities cannot make their own decisions. Their actions must tally with reforms imposed by donors, whether friendly or unfriendly,” Albert Mwenda, acting chief executive of the Institute of Economic Affairs (IEA) told IPS. These policies, which some economists and civil society groups dread, include retrenchment, as stipulated in a meeting between government and the Bretton Woods institutions in November 2003.

During the parley, the World Bank and the International Monetary Fund (IMF) urged Kenyan authorities to trim Kenya’s civil service in exchange for aid. Last month the government announced plans to lay off over 20,000 of its civil servants between July 2004 and June 2008.

To the disappointment of economists, this year’s budget concentrated on labour dispute resolution instead of outlining ways through which new jobs could be created.

“These methods should have included tax incentives that could have translated into increased investments leading to influx of jobs,” Mwenda argued. “This would have greatly reduced the devastating face of unemployment in the country and increased economic growth.”

The Ministry of Planning and National Development statistics shows that 14.6 percent of Kenya’s labour force is unemployed.

Economists say growth is also crucial in improving the state of Kenya’s infrastructure, particularly roads which are currently in a sorry state.

To rehabilitate Kenya’s road networks, the ministry of roads and public works has been given around 85 million dollars, one of the highest budgetary allocations. “A vibrant road network makes the economy vibrant while poor state of roads suffocates economic growth,” Mwiraria argued.

All in all, observers concur that if this year’s budget is translated into action by focusing on growth, Kenya, whose gross domestic product (gdp) growth is the lowest in East Africa, might catch up with her neighbours Uganda and Tanzania.

Kenya’s gdp growth is estimated at 1.8 percent up from 1.2 percent in 2002, while Uganda’s is estimated at 6 percent up from 5.2 percent last year. Tanzania, which is regarded as one of the fastest growing economies in Africa, enjoys a gdp growth of 5 percent.

The budgets of the three East African countries were read concurrently on June 10.