Trouble ahead for Kenya's economy

The defeat for the bill is a major blow to President Moi

The International Monetary Fund (IMF) has said its lending programme to Kenya will remain on hold.

The Kenyan Parliament on Tuesday threw out a bill aimed at curbing corruption, which was one of the IMF's key criteria for the resumption of aid, suspended late last year.

The Kenyan government - already presiding over the worst slump since independence in 1963 - now has to find ways of filling the hole in next year's budget.

The IMF had been set to donate $40m to the Kenya this year, but the total amount of money expected from international lenders was about $300m.

Economic trouble

Without IMF support, other international donors will be reluctant to commit money to Kenya - a nation regularly ranked as one of the most corrupt in the world.

Ordinary Kenyans will suffer

Speculation now exists that the government will have to borrow heavily to finance the budget.

With high unemployment and a shrinking gross national product, the timing could not be worse for the ruling party, with presidential and parliamentary elections around the corner in 2002.

Observers say that Kenyans can expect tax and interest-rate rises, spiralling unemployment and deepening poverty.

The implications for the Kenyan economy are huge, Patriba Thaker, the Economist Intelligence Unit (EIU) regional director for Africa told BBC's World Business Report.

A large proportion of this year's budget was based on some external donor support, she said.

"What it will mean is that as in recent years, development spending will suffer," she said.

The economy is expected to grow about 2% this year and this growth rate hinges on the agriculture sector recovering after last year's drought.

"In terms of GDP per capita, it is certainly getting poorer or not developing as fast," the EIU's Thaker added. "In order to see a real difference, they would have to generate growth of 5 to 6% for the next five years."

Critics

With all this at stake, many wonder why the opposition Kenyan party voted to reject the bill.

Critics of the bill say it was inconsistent and unlikely to make any practical difference in the fight against corruption.

Karaitu Murungi, a member of parliament who voted against the bill, told BBC's World Business Report that it was fundamentally flawed.

"It would have had no effect on the ground," Mr Murungi, shadow attorney general and a member of the opposition Democratic Party said.