The reason I am concerned about this is because of the current economic stimulus programme started by Hon. Uhuru Kenyatta the minister of finance. It is a noble and humane idea to get tax payer money working to build the country, stimulate aggregate demand by filling the hole left by declining private sector demand due to the economic downfall as well as getting money into people's hands. The sad thing though, that economists I feel haven't highlighted, is that the transmission mechanisms for stimulus money in Kenya are broken. The budget was read in June last year and of the proposed Ksh 22 billion, only 3 has been used so far. The rest of the 19 billion is still in treasury waiting for tenders to be completed and signed and a whole lot of bureaucratic procedures to be completed. I am afraid that by the time stimulus money gets into the economy through the projects and ultimately to the people's pockets it could be at least Q2 2011.
What then? By then won't the worst of the downturn have been behind us. Further still won't that mean that we got by the downturn despite the stimulus rather than due to the stimulus? Of the money that gets into the economy, won't it result in unnecessarily high levels of money supply? Won't this then lead to an increase in underlying inflation? Won't CBK then try to reduce money supply to mitigate the increase in underlying inflation? Won't the politicians praise the efforts of the stimulus due to the increased fortunes of their electorate heading into 2012 elections? Won't parliament then have great incentive to pass laws that institutionalise the stimulus and thus lead to an annual fiscal drain of at least 22 billion shillings to the taxpayers?
Won't this all be unnecessary? In my opinion, we need a body of economists who will crystallise debate over such issues and put them in the public domain. In America, stimulus programmes work well because they are quick to transmit to the rest of the economy. They have flexible legislature that can be quickly called to fix the crisis and quicker means to get money to where it needs to be. Here the medicine takes effect way after the patient gets better leaving unnecessary symptoms that when treated will lead to confusion in the patient's body. For me the effects will be high levels of inflation come 2011. Currently we are seeing at least 5% of overall, it could be more then and who knows that coupled with drought could see the level double to 10%. What then?
What's your take?
