Effects of weak shilling yet to come

December 8, 2011 1:58 pm


Kenyan currency
NAIROBI, Kenya Dec 8 – The Kenya Revenue Authority (KRA) on Thursday warned that the effects of the weak shilling on revenues will begin to be felt by the next quarter.

KRA Commissioner of Domestic Taxes Department- Large Tax Payers Office John Njiraini told the House Select Committee on the Depreciation of the Shilling that in the short run, the declining currency has resulted in higher revenue outturn as importers pay more shillings for a dollar.

He said that although customs revenues have been on the increase, the persistent weak currency will in the long run lead to lower import volumes and revenues as importers adjust to reduce import orders particularly on non-essential and luxury commodities.

In October, the shilling touched a historic low of 107 to the dollar but has since begun to appreciate to stand at 89.80 to the greenback owing to the various measures that have been taken to shore it up.

At the same time, an economist attributed the fluctuation of the shilling to a policy blunder at the Central Bank, weak controls, and an incoherent monetary policy.

David Ndii said that the 2009 fiscal stimulus package should have been scrapped in mid-2010, because all it did was to pump more money into circulation and increase demand, but it did not improve the supply of goods.

Shortage of goods in the domestic market led to a surge in imports, resulting in a demand for foreign currency, hence the drop of the shilling.

“The right policy would have been to roll back the stimulus package in the 2010-2011 fiscal year. That was an error in judgment,” he said.

“When you have a growth shock, accept it. The nature of our economy is that it is going up and down all the time,” said the economist.

He alluded to printing of money when he mentioned “quantitative easing,” saying that there’s was a likelihood that the Central Bank printed money back in 2008, when the government was busy trying to get out of the economic low that arose after the bloody political crisis in the aftermath of the 2007 General Election.

Ndii said money is usually printed to shore up bank reserves, and not to support the economy as the government had done.

“The monetary stimulus was an overkill and we didn’t actually ask ourselves why other governments were doing it,” he said in regard to the global financial crisis in which many governments printed money to manage their fiscal situations.

He told MPs that there was a lapse when it came to monitoring the economic situation.

Ndii said the Central Bank “should have been prudent” in its response, because from its knee-jerk reactions it was evident that the CBK “let go for too long”.

“What (the Central Bank) seem to be doing is to help a political cause of improving the economic growth. The job of the Central Bank is to give warnings. It should always talk about the risk of overheating the economy. Its job is to tell people to take the foot off the gas… The Central Bank seems to be pre-occupied with growth,” he said.


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