Kenya urged to make a stimulus plan

April 6, 2009
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, NAIROBI, Kenya, Apr 6 – The government should put together a stimulus package to rescue the sectors of the economy that are reeling from the effects of the second wave of the global recession, an economist has recommended.

Dr Thomas Kibua told Capital Business that the government should learn from the developed world and act fast to save the high growth sectors such as agriculture and manufacturing that can expand economic growth.

 “What the rest of the world is doing is to stimulate their economies through increasing the aggregate demand where the governments are trying to stimulate consumption, private and government investments and exports,” he explained.

Dr Kibua added that this move by the western world was meant to reduce taxes, make more disposable income available to the people and encourage private investments to prevent the economy from shrinking further.

Agriculture could for instance be supported through subsidies and or the provision of affordable credit while massive investments should be made in infrastructural development, he observed.

He warned that if no action is taken urgently, then it will be too late to save the economy as it will have been hardest hit by the recession.

“We know the solution is to stimulate the economy and therefore do not need to re-invent the wheel. We need to do something right now,” Dr Kibua insisted.

He added that Sh800 billion which is close to what the government had intended to spend in the 2009/2010 budget would be enough to turn around the economy.

“That government budget (Sh760 billion) was targeted to produce a growth rate of between seven and 10 percent and this is the amount of money we need to move forward, if we are able to raise this then we can get back on the development path,” he added.

Asked which options are available to the government particularly at a time when it was facing its widest budget deficit in the country’s history, Dr Kibua remarked that the solution lies in the realignment of budgetary provisions.

“There is no time that the government will have no money. The current problem is not lack of funds but that the budget is not balanced; that is the revenues are less than programmed expenditure,” he stated.

The options would first and foremost be to increase revenues by raising taxes, increase compliance and strengthen revenue administrations. This he pointed out would not be a viable alternative because there is a lot of unemployment, over taxation and because there are still a lot of Kenyans who are not remitting taxes.

A feasible solution, he observed however lies in working on the expenses side by reducing expenditure on unnecessary things. He at this point lauded the recent directive by President Mwai Kibaki that funds for development projects are not cut in the wake of the credit crunch saying that growth comes from these programs.

This option, he emphasized forces governments to print money in order to create additional resources available for investments or borrow although not much can be raised through the latter choice.

Should the government opt to print more currency, Dr Kibua said this would slightly push up inflationary pressures albeit in the short term because majority of the population would now have disposable income.

“When there’s a high demand (of goods and services) and production has not picked up, then inflation will go up. In the medium term however, production increases and that is what Britain and America are counting on,” he added.

Dr Kibua also suggested that Kenya and Africa as a whole should consume less of imported products and services which would also go along way in revitalising the economy.

“No one (the Western countries in their stimulus plans) is taking about how to revive Africa; you don’t hear the continent being factored in because they want to encourage their people to consume locally produced goods. This is what we should do,” he added.

In such hard times, the economist underscored the importance of states in ensuring the revival of their economies. The Kenyan government should partner with the private sector in order to effectively safeguard shareholders’ interests and assets.

“Government should get involved not only in regulation but also in productive activities. It needs to be involved in the running of these companies in order to preserve our economy,” he emphasised.

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