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"id": 270464,
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"speaker_name": "Mr. Okemo",
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"legal_name": "Chrysanthus Barnabas Okemo",
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"content": "Mr. Speaker, Sir, I thank you very much for giving me the opportunity. I would like to make my contribution to this debate, but first I would like to announce that I am a Member of the Committee, and I would like to apologise that I managed to attend only one meeting. However, I have been able to read the Report. The Report contains a lot of good issues. The Committee has actually interrogated the matter very thoroughly. The facts that are in the Report are facts that have come from various experts. However, having looked at the facts that are contained in the body of the Report and the conclusions, I have a problem. The conclusions do not seem to tie-up with what I see in the body of the Report. I will say why. Mr. Speaker, Sir, when you look at the state of the economy and the problems that we faced in September/October, 2011, when the country was going through this emergency, you have to look at the fiscal policy stance and the monetary policy stance at the time. You have to look at the two together to be able to determine whether the state of the economy was healthy or not. I just want to isolate three issues, which are the three macro-economic variables – inflation, interest rates and exchange rates. These are the three critical macro-economic variables, which we must look at. At any point in time, the fiscal policy and the monetary policy are impacting on those three economic variables. The Report has talked about the Current Account deficit. When you talk about the Current Account deficit, you are talking about imports and exports. So, what are the factors that have been in play all the time, even prior to the emergency, in terms of exports and imports? Imports have continued to impact on the economy negatively because there has been no form of control. Therefore, all kinds of imports, including non-essential items, have come in. That is a fiscal consideration. Mr. Speaker, Sir, the export revenue has continued to be eroded. If imports have continued to go up and exports revenue has continued to come down, it means that day by day, the pressure on the balance of payments continues to increase in the context of the three economic variables – inflation, interest rates and exchange rates. It is not true to say that the problems that existed before do not exist today and, therefore, there is no problem. In fact, the problem is continuous. We must, first of all, look at the 2008 to 2011 situation. We started off with drought, post-election violence and many other things. So, the economy was actually in a form of recession. Therefore, the fiscal policy stance of the Government was to revive the economy. Reviving the economy means that you had to have an expansionary fiscal policy, where you do budget deficit financing, meaning implementation of infrastructure and other development projects, including the very popular Economic Stimulus Programmes. If you look at the facts of what has happened up to today, it should actually have been stopped in 2010/2011, but it was a very popular move. It was very popular in terms of Members of Parliament and our constituencies because these projects added value to the constituents. Mr. Speaker, Sir, as that went on, what was the monetary stance at the same time? The CBK was accommodative. It reduced Treasury Bills rates from 7 per cent to 3 per cent and kept them artificially low at that level. The idea was to force commercial banks to lower their interest rates, so that they could expand credit to stimulate the economy. That went on until the credit expansion became so big that the liquidity was too high. In fact, the creation of credit during the same period was about 38 per cent to 40 per cent increase meaning that all the banks were flush with cash. The liquidity was extremely high. Even by 2010, the liquidity was still extremely high. As that went on, the collection of revenue by the Government as the Government expenditure there was a big gap creating a big budget deficit. If there is a big budget deficit that means there is pressure. That means we are spending more than we are collecting. That money has to come from somewhere. Some of the expenditures involved imports, which means, therefore, that if we did not get enough foreign exchange reserves- -- These foreign exchange reserves will come out of exports and also capital inflows through foreign direct investments. This has an impact on the CBK because if these do not come in then the CBK does not have sufficient reserves to be able to regulate the banking sector. To be able to do that, you must have enough reserves to pour into the banking system in order to increase the supply of dollars and thereby reduce the exchange rates to keep the shilling stable. So, this is the scenario that was under play by the time the crisis came to be. As this was continuing, the pressures were still going on. The oil prices were increasing, therefore, imports were increasing; therefore, the pressure on the shilling, inflation and the exchange rate continued. So, it is not right to say that these factors were always there and are still there; and therefore, they do not contribute because they do and they continue to do so. Even as we are today, we are not out of the woods. In fact, if we make the mistake to relax some of the measures that have been put in place today, we can very easily go right back to where we were before the crisis. Therefore, what I am saying is that all these points are actually contained in the report. That is why I am saying it is a very good report, except I do not agree with its conclusions. However, the body of the report is good. It states the problems. It states why those problems happened. However, the conclusions are not the solution to the problem. We need to look at what the solutions to the problem should be. Before I come to that, how---"
}