Lies, half truths about this economy

Traders display items in Nairobi streets: Despite IMF’s 5.6pc growth report, most businesses report low sales. FILE PHOTO | FRANCIS NDERITU | NMG

The International Monetary Fund (IMF) announced that it is immediately releasing $680 million to Kenya. Whichever way you look at it, this is good news.

Yet we are not out of the woods when you look at the most pressing balance of payments challenges we are faced with currently, the most critical of which is the $2 billion Eurobond debt maturing in June.

I combed through the fine print of the statements released by the IMF on Thursday to assess the level of support and commitment the fund is prepared to accord us.

IMF statements are couched in diplospeak but the quote I found telling is this one:

“Despite the good progress, urgent balance of payments needs have emerged, primarily due to the US$2 billion Eurobond maturing in June 2024 as prior expectation of a full rollover via a bond issuance at a reasonable cost is unlikely to materialise under the prevailing global bond market conditions. The additional IMF financing under the EFF/ECF programme will alleviate part of this financing pressure.”

In plain language, what the IMF is telling us here is the following: ‘I have done my part, the rest is up to you, you are on your own since you don’t have access to international markets at a reasonable cost’.

The government has been hoping that, together with expected funds from the World Bank and regional banks like the African Export-Import Bank and Trade & Development Bank (TDB), the IMF funds will help Kenya to pay the looming foreign debt maturity without running down our foreign exchange.

Trade Development Bank was supposed to raise for us a total of $500 million by December. That is why we went to the rooftops and promised investors that we would make a $ 300 million instalment and buy back 25 percent of the huge Eurobond obligation. We are now told that in December, TDB only managed to disburse $200 million that it raised from its own balance sheet. We are counting on the regional bank to syndicate for us the remaining $300 million before June.

The rate of interest of the facilities we are accessing from the regional bank is yet to be disclosed.

The assessment by IMF’s economists of the state of our economy and the prospects in the medium term left me remembering that memorable quote attributed to former British Premier Benjamin Disraeli and popularised by Mark Twain that goes: There are three kinds of lies, damn lies and statistics.’

Economic statistics can paint a picture that does not reflect the reality on the ground.

According to the IMF, our economy expanded by 5.6 percent year-on-year in the first nine months of 2023. Yet what we see and are experiencing on the ground doesn’t seem to reflect such a rosy situation. No less than 17 listed companies across a broad spectrum of the economy have declared profit warnings, citing a steep drop in demand for their products.

The Kenya Association of Manufacturers the other day put out statistics showing how its members had shed 70,000 jobs in the year to date.

But an even better indication of economic conditions in Kenya- which is unique to our economy across the world -is mobile payment volumes. In the first 11 months of last year, mobile payments volumes declined for the first time in 15 years.

The lobby for the motor industry has also put out statistics showing that new vehicle sales were down by 11.3 percent. Yet another proxy for growth- growth in electricity consumption by industrial users- has shown stagnation.

Lies, damn lies, and statistics. When the IMF says an economy is ‘resilient’ that’s subterfuge for stagnation.

Following the prescriptions of the Fund, the Monetary Policy Committee has been tightening the monetary stance by allowing interest rates to go up in the hope that high rates on government securities will attract portfolio flows and stabilise the exchange rate.

The Central Bank has also adopted a stance to allow the exchange rate to depreciate.

According to the statement put out by the IMF Thursday, one of the trends – which according to them – is positive and has happened- is the fact that the shilling has continued to depreciate and that imports have decline.

Yet in our own context, every one shilling depreciation adds an estimated Sh40 billion to our debt service. When imports fall and contract, it means that raw materials for manufacturing and for sustaining employment in the real economy is not coming into the country.

Ours is an economy that is faced with just too many risks. Because of borrowing massively from both Chinese- and having joined the Euro Bond bandwagon, our economy faces major external debt risks,

We are a low-income primary goods exporting economy that is exposed to large fluctuations in terms of trade and therefore vulnerable to volatility of the exchange rate.

The writer is a former managing editor of The EastAfrican.