Aid taps start flowing

A total of nearly US$4.2 billion has been promised over the next three
years, again springing up the question of whether the bureaucracy has
the capacity to absorb the unprecedented chunk.

The commitments were made during a two-day Consultative Group meeting
held in Nairobi during the third week of November. The venue of the
meeting, if not the forum itself, was pregnant with meaning. CG meetings
are coordinated by the World Bank yearly.

But for Kenya, none had been convened since 1996; a clear indicator that
donors considered the Kanu regime, swept away by a popular wave last
December, beyond the pale. The meeting has never been held in Kenya.

It was convened in Paris between 1988 and 1996 with exception of 1994
when it took place in London. It brought together nostalgic
representatives of both multilateral and bilateral donors, and 25
countries were represented.

Earlier announcement of US$252 million support by the benchmark
International Monetary Fund had only made the fact that donor support
had returned quite clear, but was no indicator of its magnitude.

Finance minister David Mwiraria termed the amount "unprecedented donor
generosity", predictably feeding the derogatory stock that has become
"The Economist" magazines coverage of Kenya lately.

But first, the good news pertaining to the disbursement covering 2004 to
2006. Kenya has been grappling with insufficient inflow of capital in
any form over a decade now. It is clear that with projects set to start
rolling again, the economy can do better than the paltry 1.8 per cent it
is set to register in the year.

Instructively, the bulk of the money, 65 per cent, is to be funneled
into projects. This means roads can be constructed with the predictable
multiplier effect on the economy. The cement industry is singularly
elated. What with the government commitment to commencing construction
of concrete roads.

For the government, that some15 percent of the money is for budget
support is a huge relief. It is running a deficit conservatively
estimated at Sh62 billion (US$815 million) or about 6.5 per cent of the
Gross Domestic Product.

Smiling also is the private sector and the non-governmental
organisations, both allowed for the first time into the CG meeting, as
ten per cent of the total aid package will end up in their hands. A
sweetener is that Kenya is set to benefit from a rescheduling by the
Paris Club of multilateral donors to the tune of US$100 million yearly,
over the period.

Whereas Kenya's external debt is not considered critical enough to
warrant the Highly Indebted Poor Countries (HIPC) relief, the fact that
the Treasury has over the years had to tap the domestic money markets to
repay it has been worrying-mainly so to the forex market.

That external funding for the government was not forthcoming meant it
had to concurrently raid the same to fund its budget deficit, clearly
crowding out the private sector and keeping rates out of reach for them.
It now transpires that haughty banks have to restructure and reduce
their dependency on Treasury paper, now offering a measly under two per
cent in interest, to the pleasure of the bumbling Nairobi Stock
Exchange.

Besides the Paris Club, London Club of commercial creditors will meet
to reschedule some amounts under similar terms. IMF in November delayed
their executive board meeting to carry out further debt sustainability
analysis (DSA) and it is understood the problem had to do with the fact
that Kenya was planning to talk to the debtors individually.

IMF officials remained in Nairobi for ten days after the CG to pave the
way for both Club meetings. But not every one is opening the champagne
cocks as the cost of the apparently generous offer is emerging. The most
obvious catch is retrenchment in the Civil Service. Both donors and
government agree that the recurrent expenditure, which is dominated by
the staff wage bill, is not sustainable.

At about a fifth of the GDP now, the government and donors have agreed
to bring it down to eight per cent in a few years, much in line with the
regional norm. It is unambiguous that the painful retrenchment programme
that was halted mid-way in 2000 is set to kick off and over 20,000 of
the estimated 220,000 government workers-excluding teachers-will have to
go. No Kenyan though doubts the need of sharpening the system after
years of extremely poor State services.

Another issue is government subsidies to the agricultural sector, which
has been ailing. IMF and the other donors are likely to thwart the Narc
government's attempt to bail out particularly the inefficient farmers.
Privatisation of weak parastatals is again likely to throw out another
chunk of employees in a country with runaway unemployment crisis. A law
has been belatedly brought to parliament seeking to regularise the
process, which commenced in the early 1990s.

Welcome as the news is, analysts will be keenly watching to see whether
the government is able to carry through the reforms. Of much concern
despite government ire at highlighting of the matter by Press is
stability of the coalition. IMF chief of the Kenya mission Godfrey
Kalinga said IMF executive board had thought as much during the CG
meeting.

While few are wagering on the coalition breaking up any time soon, unity
of purpose required in pushing through radical reforms maybe wanting.
Whereas the government has pushed through painful measures like purge of
the Judiciary, it is obvious that factional interference is probable to
show its face in other facets of reforms, in a highly ethnicised
country.

But for now, Kenyans despite constant political bickering and growing
public discontent are enjoying some democracy for the first time in
twenty-four years. Their high hope, as well as that of other African
countries and well-wishing financiers, is that it can take its rightful
place on the continent. And act as an engine of development for this
part of Africa.