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.