High stakes in tough audit by IMF

Stakes will be high for the Kenyan Government this week, as a high-powered mission of the International Monetary Fund (IMF) concludes what amounts to an audit on its performance against reforms, on the basis of which the Fund lent it $201 million in June this year.

The six-man team led by senior Africa division executive, Mr Michael Atingi Ego, quietly flew into the country on October 15, and has since been probing the management of the economy and conducting consultations with the government and the private sector.

Faced with dwindling foreign reserves, Kenya went to the IMF in March and successfully secured the loan. The country was at that time in a tight spot with the government estimating that without support from the IMF, foreign reserves would have fallen by almost $800 million below the previous year’s level.

Kenya needed the money to rebuild its foreign reserves and, therefore, pre-empt a situation which would have otherwise forced Central Bank of Kenya to frequently resort to buying dollars from the market and risk precipitating pressures and instability on the exchange rate.

In a conversation with the Nation, the IMF country’s representative, Mr Scott Rogers, said that the visiting mission had nothing to do with the $201 million loan, pointing out that what was going on were normal yearly consultations between the Fund and its member countries.

“These are the usual Article IV Consultations,” he stressed. But going by the set of questions the visiting IMF mission has circulated to various government departments — a copy of which has been seen by the Nation — it is clear that the scope of the visiting mission’s engagement is not only broad, but will touch on politically-sensitive reforms.

For instance, the mission has demanded answers on progress in investigations of the maize scandal where top government officials are suspected to have colluded with private maize millers and the National Cereals and Produce Board (NCPB), to abuse a maize subsidy programme that had been introduced to provide a safety net for consumers.

Last year while the government was negotiating the IMF loan, Finance minister Uhuru Kenyatta made a commitment to the Fund that the government would conduct a forensic audit on the transactions of the NCPB to determine the facts and extent of the whole scam.

The government also promised that it would introduce a new and targeted food subsidy programme by December this year. “With regard to reforms in the financial sector, the top agenda for the visiting IMF mission would appear to be the status of the banking licence of troubled Charterhouse Bank, its statutory management and the legal process in court.

Progress

The mission has also asked for a brief on the progress of the crime and anti-money laundering Bill and an update on plans by the government to sell its shares and those of the National Social Security Fund (NSSF) in the National Bank of Kenya (NBK).

It also wants an update on the status of the supervisory agreement between Central Bank and the NBK. After an impressive growth of 4 per cent of GDP in Q1 of 2009, mainly as a result of a rebound of activity in retail and wholesale trade, transport and communications, hotels and building and construction, economic activity shrank in Q1 to register a GDP growth of 2.1 per cent.

But the government’s projection right now is that recovery will start resuming in Q4, once spending on the stimulus package spelt out in Finance minister Uhuru Kenyatta’s budget for the current financial year kicks in towards the beginning of November. Already, there are signs that economic activity will surpass the performance of the second quarter.