OPINION: Save The Sliding Shilling
Kenya’s balance of payment is unfavorable and there is no substantive Central Bank of Kenya (CBK) Governor yet.
The ‘hawalas’ (money-vendors) have been driven out of town in sweeping anti-terrorism measures as insecurity is fast making the country a terrorism case study, alongside Somalia and Nigeria.
The season for singing ‘corruption will be dealt with’ is here. Corruption is running rings around Kenya as we play to its cacophony.
The Nairobi Security Exchange (NSE), with more foreign than local investors, has suffered forty per cent shrinkage, courtesy of the Capital Tax Gain (CGT), and the list goes on.
But what do all these disparate events have in common… driving down the shilling towards the psychological one hundred shillings rate to the dollar.
It is an open secret that Kenya’s strong traditional foreign exchange earners are no more.
Tea and coffee sales in the international markets have been depressed for a while now.
BALANCE OF TRADE
Then late last year, a row on Economic Partnership Agreements (EPAs) between East Africa and European Union threatened to bring the horticulture export sector to its knees.
Tourism is literally crawling and with no coordinated consultative process to raise it up, it is in a painful lull limbo for the once major foreign exchange earner.
Kenya’s balance of trade favors her trading partners; in a nutshell it imports more than two times what it exports.
The office of the CBK Governor has been vacant for over three months.
The term of the former Governor Prof. Njuguna Ndungu was known to be coming to an end, yet the position remained yawning for over three months!
In the case of the seat of the CBK governor, unlike other pole public positions, the holder is critical in giving the money markets direction and stabilizing the dear shilling using appropriate policy tools.
The Monetary Policy Committee’s move to bring forward a scheduled meeting to 9 June 2015, will have two options, increase the Central Bank Rate (CBR) and offer a blanket to the shivering shilling or retain the status quo and remove the tattered shirt off the shilling’s back for further beating.
Terrorism has hit Kenya hard. The government’s security machinery appears both unprepared and uncoordinated in tackling the menace. Or could it be they are just out of their depth?
When a neighboring President came visiting over ‘Madaraka Day’, he gave unsolicited but timely advice towards handling terrorism locally. Figuratively, he alluded to a case of a leg infested with jiggers… do not cut it off.
Instead he opined that using a sharp pin, identify the jiggers and carefully remove them before applying some balm.
Coming from one whose country was last hit by terrorists in 2010, it will not hurt to try out our neighbor’s intelligence-led strategy.
Secondly, Kenya’s Westerly neighbor is the glad recipient of the ‘hawalas’ whose businesses were declared illegal in Kenya.
The public authorities here ordered their closure with immediate effect.
It is obvious that the steady and growing source of Kenya’s current meager foreign exchange are remittances from the diaspora.
Because ‘hawalas’ were cheap, fast and reliable, many in the diaspora choose to use them happily.
To order the ‘hawalas’ out of town presumably to cut off terror funding might solve one problem while replacing it with another one… look at the Kenya shilling.
Meanwhile it is the season again to go running after real and imagined perpetrators of corruption in our midst.
As usual, it is confusion galore as the hunters soon become the hunted and have to exit in a huff.
Economic theft is a form of corruption while engaging in expletives diarrhea against cops is not.
Someone somewhere could be naïve but not everyone all the time. Hard earned Kenya shillings have been carved out of our public system to benefit the well connected, question is… for how long?
Ambitious capital projects pursued by the Kenya government have resulted in an ever-ballooning national budget.
This gives pressure on the taxman to find more sources of revenue to fund the budget.
It is a given, Kenya’s taxman lacks policy creativity and diversity when it comes to casting the tax net.
So it came as no surprise when the taxman went into his old basket of revenue sources and fished out good old capital gains tax (CGT).
It has history but had to be shelved. However the issue now has to do with stockbrokers who have held steady saying… ‘Can’t do, won’t do’ with regards to collecting this tax. The result has been shrinkage of activity at the NSE bourse.
The taxman is definitely not meeting his targets from this revenue source.
Here, wisdom calls for change of tact and collaboration with the traders if any revenue will eventually be realized from this policy.
Meanwhile, news has filtered in that CBK has a nominee for the seat of governor and this is good news.
The difficult part for the new governor will be to stabilize the shilling and ensure that inflationary pressures triggered by weak economic structures, hence the sliding shilling, are contained.
No miracle will be forthcoming but prudent decisions and interventions are called for to steady the economy and set it on course for growth in the middle of all these challenges.
With a packet of unga having hit over one Sh140, there should be concerted efforts to ensure the shilling regains some muscle, some respectable purchasing power.
Ugali is too dear to very many people in this country.
By Vincent Obadha
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