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Contributor: James Ogunleye
Saving Kenya From Economic Collapse

Carol Bellamy, executive secretary of the United Nation Children?s Fund (UNICEF), got the shock of her life when, in 1995, she made a casual check on the accounts of her agency?s operations in Kenya. What she found sent her blood pressure soaring - of $37 million earmarked for operations in 1995, $10 million had disappeared only a few months into the financial year.

"This is a serious blow to Unicef, an organisation which has a well-deserved reputation," said a disappointed Bellamy. But she still counted her agency lucky. UNICEF?s $10 million loss is a lose change compared with what the Kenyan nation has lost to theft in the last seven years. Kenneth Matiba, a businessman and leader of the Forum for Restoration of Multi-Party democracy in Kenya, last year published a report that detailed how $1.60 billion was stolen from the state coffers between 1990 and 1997. Not to put too fine a point on it, the report was a study in skulduggery.

Today, knifed by corruption and starved of funds from the western creditors, the Kenyan economy is bleeding at the heart. Economic output, as measured by the GDP, is down from 4.6 per cent in 1996 to 2.9 per cent in 1997. Forecast for 1998 output hovers around 2.0 per cent - inadequate, of course, to feed the 3 per cent annual growth in new mouths. Inflation, meanwhile, shot up progressively, from 1.6 per cent in 1995 to 11.2 per cent in 1997. What fuelled the inflationary pressure was the excessively high food prices and low money supply growth. The fall out of inflation and low money supply growth in the economy is high interest rate, which currently stands at 27 per cent.

The country also received blows from the external economy. The most serious came from its balance of payments. A surplus current accounts balance of $98 million in 1994 plunged into a $445 million deficit in 1997 - a situation caused essentially by low tourists patronage and high level of imports. Foreign reserves, too, took a dip, from $747 million in 1996 to $579 million in 1997. Kenyan per capita income (income per head) dropped to $255, from $420 in 1980. Even though the external debt has been marginally reduced in the past two years, the stock of domestic debt has continued to rise, from Ksh130.8 billion in mid 1997 to Ksh158.3 billion at the end of the first quarter of 1998.

Late last year the International Monetary Funds (IMF) and World Bank pulled the rug from under the economy by suspending $215 million worth of aid packages to Kenya. The decision sent the economy reeling and harried economic managers into panic. Last month, in Nairobi, at an impromptu economic forum chaired by Daniel Arap Moi, the state president, Kenyan political and corporate leaders jaw-jawed on how to save the economy running aground. After a long, hard day debate, the forum rose with recommendations to the government to, amongst other things, cut public expenditure, balance government books, conclude loan arrangements with the IMF and reform the banking sector.

But for the government, the immediate challenge lies in management of public funds. "Currently, we?re using nearly 31 per cent of GDP on the public sector but we do not seem to be getting anything in return in terms of economic growth," lamented Simeon Nyachae, Finance Minister. Nyachae is right, of course. In the six months to November 1997, 37.4 per cent of the total spending went on civil service wages and salaries, a sector that has grown in size from 450,00 at the beginning of 1990s to 500,000 in 1998. At the moment the hole in government finances is equivalent to 2 per cent of the annual GDP. The forum was not oblivious of this fact and it rightly proposed a freeze in the planned increase in civil service pay. As a complementary measure, however, government also planned to improve revenue collection. Observers say up a third of tax and other levies accrued to the government disappeared before it gets to the state tills.

Also on the government?s mind is the "culture of bribery and kickbacks," which Moi admitted "have been major sources of corruption" in Kenya. The IMF is adamant that until the government takes a serious stand on the issue no new money would be released to Kenya. The government now plan to give additional power to the anti-corruption unit, set up in the wake of similar crisis in 1994. Declared Arap Moi: "Those engaging in corruption know their time is up."

Analysts say the crusade against corruption should not be limited to the government sector alone. "The constitutional review process and (the Nairobi) economic forum are addressing the political governance structures. But what of the corporate governance?" queried, Sam Mwale, an analyst on Kenyan public policy. He added: "It?s a well known fact that the private sector in Kenya has nearly as much corruption, profligacy, unaccountability and ineptitude as the public sector."

All in all, the admission by the government that the economy is sick and needs tough medicine is seen as the "turning point" in the country?s economic governance. The challenges now lies in the implementation of the remedies.
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