IMF warns of economic doom

Story by JEFF OTIENO - DAILY NATION Publication Date: 1/7/2008

The International Monetary Fund Sunday warned that Kenya was facing an economic catastrophe if the current post-general election standoff is not addressed. IMF managing director Dominique Strauss-Kahn also said the institution was concerned that supply disruptions due to violence in the country was affecting other countries in the region. Some of the countries that are already feeling the pinch of the post-election violence are Uganda and Rwanda which heavily depend on the port of Mombasa for imports like petroleum, machinery and other products. As a growing regional economic hub, Kenya is the transit point for one quarter of the GDP of Uganda and Rwanda, and one third that of Burundi. “I very much hope that the political leaders in Kenya will quickly and peacefully resolve the current dispute over the election results. This would open the way to further progress toward economic prosperity which could benefit all Kenyans,’’ said Mr Strauss-Kahn. Economic reform The fund was ready to support Kenya in its economic reform efforts. The concerns were supported by economic analyst, Dr David Ndii, who said the political violence experienced in Kenya will be felt for a long time. “It is important that there be political stability and confidence in the government of the day for the eroded investor confidence to be restored,” said Dr Ndii. He said the notion that calm would restore investor confidence as argued by some politicians was misplaced. Dr Ndii added that transit trade was a leading foreign exchange earner, apart from tourism and agriculture. “With the chaos that has been witnessed in the country it will not be surprising if the landlocked countries look for alternatives other than wholly relying on Kenya for their essential commodities,” he added. He said influential people who took part in the election fraud had done harm not only to the country but also to their businesses. “Investor confidence will be fully restored once Kenya holds another election that is deemed to be free and fair, whether it is next month or after five years,” Mr Ndii added. He said the cost of insuring buildings and infrastructure from political risks will skyrocket following the violence witnessed. Mr Strauss-Kahn said the Bretton Woods institution had noted with sadness the violence that has caused the deaths of many innocent Kenyans in the aftermath of the December 27 elections. “I offer my condolences to the families who have lost their loved ones to the violence and pay tribute to the people of Kenya who exercised their democratic and constitutional rights to vote. I note with concern that supply disruptions emanating from the developments in Kenya are affecting other countries in the region,’’ he said. The IMF and local economists concerns come a few days after a statement issued by the donor community which said the country was losing Sh2 billion daily. The joint statement, issued last week by the World Bank, Canada, Denmark, the European Commission, France, Norway, Sweden, the United Kingdom and the United States, warned that the gains made in the past few years could dissipate due to the ongoing destruction. Business confidence “At stake is the pre-election Gross Domestic Product (GDP) growth rate of seven per cent, rising business confidence, increasing tourism, measurable progress in firm level productivity, significant gains in democratic development and the lifting of over two million Kenyans out of poverty,” said the statement. The donor community said Sh40 billion–about five per cent of market capitalisation– was wiped off the value of shares when business resumed at the Nairobi Stock Exchange after the elections.