UN Says Graft Worsening Poverty in Kenya

Source: The East African

http://www.nationaudio.com/News/EastAfrican/current/Regional/Regional38.html

Extensive corruption, weak rule of law, escalating insecurity and poor infrastructure are the main causes of worsening poverty in Kenya, a United Nations commission said in a report published last week.

Poor governance is identified in the study as the key reason for Kenya's slow 1.8 per cent growth rate, which left the country far behind last year's African average of 4.3 per cent and even farther behind the economic expansion rates achieved by Uganda (5.4 per cent) and Tanzania (5 per cent). Kenya is also listed in 20th place among 23 African countries included in an economic policy index that is part of the UN study. 

The new annual report by the UN Economic Commission for Africa devotes an entire chapter to the Kenyan economy. The findings are not flattering to Kenya's government. 

Failure to meet anti-corruption conditions established by the International Monetary Fund is exacerbating Kenya's problems, according to the UN's analysts. "The government urgently needs to expedite the trigger actions for the resumption of an IMF-World Bank programme," the report declares.

"Poverty has increased, and income inequality and social indicators show worrisome trends," the report warns. It says that millions of Kenyans are seeing their already dismal quality of life deteriorate further as a result of mismanagement and other shortcomings in the education and health sectors. More than half the population is now classified as poor, and those Kenyans "are malnourished, have little education, and do not have access to proper medical care," the study observes.

During 1998-2001, the Kenyan government spent more than 18 per cent of its total budget revenues on education. "Yet gross enrollment rates at the primary and secondary levels are below the norm for such high spending. More worrisome, gross primary enrollment fell about 4 per centage points in 2000," the report notes.

In fiscal 2001 health services accounted for 15 per cent of recurrent government spending on social needs, second only to education. In this sector too, outcomes have proven disappointing, according to the UN study. Life expectancy has fallen from 55 years in 1996 to 49 years in 2000 mainly as a result of Aids, though inadequacies in the health care infrastructure have played a role as well, the study suggests. 

Poor administration is also said to be a leading cause of problems in specific areas of the Kenyan economy. Along with insider lending and slow loan recovery, mismanagement is cited as an important reason for the poor performance of the banking industry. "These problems, in turn, are the result of an inefficient court system, inadequate regulatory powers for the Central Bank, and the slowdown in economic activity," the report finds.

The UN commission does not take explicit positions on the political issues being debated in Kenya. But the report does imply that the Donde Bill, which places controls on banks' interest rates, may cause more economic problems than it seeks to solve.

One financial distortion resulting from imposition of interest controls is already evident, the study says. "Commercial banks have sharply reduced lending to the private sector and increased their demand for Treasury bills. As a result, economic operators have found it increasingly difficult to borrow, despite relatively low interest rates.

"If not corrected soon", the study warns, "this lending behaviour could have serious economic repercussions." The commission does predict improved performance for Kenya's economy in 2002, with a projected growth rate of 2.5 per cent. Again, though, the report points to the importance of restoring normal relations with the Bretton Woods institutions.

"Economic outcomes will be even better if the IMF and the World Bank resume assistance to Kenya. Such assistance would not only provide additional resources, it would also send a positive signal to other donors and private investors. Thus, in the coming year, the government should make a concerted effort to improve its relationship with both institutions," the report recommends.