Finance minister Githae has a highly daunting task in the coming months

Tuesday January 31 2012



In my long career as a business journalist and regular commentator on economic issues, I have seen many Finance ministers come and go.

You don’t have to be an economist to be a good Finance minister and Mr Njeru Githae’s appointment is not without precedent.

Mr Simeon Nyachae made a very effective Finance minister though he is not an economist.

Prof George Saitoti is a pure mathematician. During Mr Musalia Mudavadi’s tenure, the government implemented some radical economic reforms. He is a land valuer. Mr David Mwiraria is a statistician.

All the same, Mr Githae’s appointment was a little confounding. President Kibaki should have settled on a more experienced hand.

In my view, Mr Amos Kimunya or even Mr John Michuki would have been better choices.

I say so because the tasks the holder of this critical portfolio has to face in the coming months will be extremely daunting.

First, he must immediately provide leadership on the controversy surrounding passage of the Finance Bill.

It is Mr Githae we must rely on to mobilise the troops in Parliament to get this Bill passed. We wait to see whether he has the political mettle to convince a House which is currently in a populist mood.

MPs want to use the Bill as the tool to blackmail the government to allow their pet populist projects.

They have insisted that the Bill’s passage must come with the simultaneous passage of a measure to control bank lending rates.

Secondly, they will not pass the Bill until the government agrees to introduce stiffer price controls on petroleum products.

These are hugely popular issues enjoying bipartisan support within the House.

The stakes are even much higher because Mr Uhuru Kenyatta has made a commitment to the International Monetary Fund that the government will not accept interest rate controls.

If the Finance Bill is not passed on time, the government may have to face a floodgate of litigation from taxpayers.

The second daunting task for Mr Githae is that he must take leadership in resolving the dispute over a new public financial management law.

This controversy has pitted the Treasury against the Ministry of Local Government, which accuses the Treasury of refusing to devolve powers over control of finances to the counties.

The Treasury counters that even under a devolved system, you must still have an over-arching public finance management law where overall supervision and control of public finances sits in one place.

Who will play the role of “agency of restraint’’ in the management of public finances in the new system? That is the crux of the disagreement.

Is it not incredible that we have left the responsibility of leading negotiations between  the coalition partners in the hands of such a relatively junior minister?

Politics aside, the economic tasks facing Mr Githae will be daunting. It is going to be a very steep learning curve for him.

At 18.5 per cent, inflation must come down. The commercial banking system is undergoing an unprecedented liquidity squeeze, and private sector credit has fallen dramatically. Interest rates must come down if we are to experience growth.

On the fiscal side, we have to spend much more money on the General Election and on implementing the Constitution.

The government has not performed very well in implementing the borrowing programme for this financial year.

We are way behind in the plan Uhuru unveiled when reading the budget.

Throughout last year, subscriptions on government paper were low. This year, domestic borrowing has become too costly due to high interest rates.

That is why Mr Kenyatta had decided to borrow off-shore through a syndicated loan. He was about to sign the papers before he left.

This borrowing makes a great deal of economic sense. Although borrowing from the World Bank or the IMF is way cheaper, it comes with politically unpopular conditionalities.

Mr Githae will soon realise that once you go to international markets to borrow, one has to make only public statements that give lenders the confidence to hold Kenya’s debt.

Mr Kenyatta should have stepped aside the moment he appeared at The Hague.

Inevitably, the lenders intending to hold Kenya’s debts were bound to look at the development in risk terms.