CBK advises rethink of stimulus plan

May 25, 2010
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, NAIROBI, Kenya, May 24 – Central Bank of Kenya (CBK) Governor Prof Njuguna Ndung\’u has proposed that the government should consider converting the ongoing stimulus package into a long-term facility that will support economic recovery.

Prof Ndung’u said the government should also scale funds going to the projects outlined in the program until the economy, which is already showing signs of recovery, is back on the growth trajectory.

“If I was to be asked, I’d say we convert the fiscal stimulus into a public investment programme which would support the fragile growth until we see what is happening,” he said.

This would support private sector investments that are already in place and would eventually help counter the constraints faced by the business community.

Prof Ndungu’s remarks come in the wake of reports that out of the Sh22 billion that was set aside for the fiscal stimulus, only about Sh10 billion has been released to fund the intended projects while the rest is still lying at the Treasury.

“Let’s not confuse the targeted budget and the projects to be implemented. We are suffering because of purely institutional capacity problems that are in the disbursement,” he added.

Prof Ndung’u said despite this set back, the government should encourage the private sector to take up loans in large numbers and invest in the real sectors of the economy which will have a trickle-down effect to the people at the grassroots.

Last week, the government released the Economic Survey 2010 which showed that the economy expanded by 2.6 percent in 2009 but there are complaints from the public that they did not feel the impact of growth.

The Governor spoke during a press conference to brief the media on the deliberations of the Monetary Policy Committee (MPC) which decided to maintain the Central Bank Rate (CBR) at 6.75 percent.

This, the committee observed, would enable the financial sector to absorb the impact of the decline in the short term interest rates and eventually transfer the same benefits to the private sector.

Prof Ndung’u said the much awaited introduction of the long-term loans would soon become a reality with the launch of a 25 year Treasury bond which would address the structural rigidities in credit supply which the banking sector has blamed as one reason why it doesn’t lower its lending rates to correspond with the lowering of the CBR.

The MPC also expressed confidence about the performance of the first quarter of the year as indicated by the revenue collection during the period, the recovery in the tourism sector and earnings from the tea, coffee and dairy sub sectors.

This, it observed, would also be supported by the declining inflation which has stabilised and is expected to be sustained at below five percent.

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