Kenya economy 'will disappear'

Most Kenyans live on less than $1 a day

Analysts warn that Kenya's economy faces "collapse" after parliament rejected a bill to set up an Anti-Corruption Authority.

The International Monetary Fund (IMF) is refusing to resume aid until the establishment of such an authority after suspending lending last year because of concerns about the government's commitment to fighting corruption.

Kenyans will continue to get poorer and the economy will disappear

Chris Kirubui, businessman

Kenya's current budget assumes an inflow $300 million of foreign aid and correspondents say it will now face a large hole in its spending plans.

But legislators who opposed the bill said they did so because it would only have papered over corruption, not reduced it.

Kenya is already experiencing its worst recession since independence in 1963 and last year its economy shrank by 0.3%.

IMF loans were originally suspended in 1997 and resumed briefly in 2000 after President Daniel arap Moi pledged to introduce new anti-corruption legislation.

Top ten

Surveys by Transparency International, a German-based non-governmental agency that campaigns against corruption, regularly place Kenya among the world's 10 most corrupt countries.

President Moi says the fight against corruption will continue

Wilfred Kiboro of the Federation of Kenya Employers said: "I expect interest rates to go up, I expect retrenchments to increase, I expect confidence from investors to fall."

A government official said the failure to pass the bill was "a disaster".

"Kenyans will continue to get poorer and the economy will disappear," said leading businessman Chris Kirubui.

Eric Ronge of the Kenya Institute for Public Policy Research and Analysis was equally gloomy: "We should expect a continuation of the recession because this economy is dependent on donor funding."

Tighter control

The IMF decision not to resume aid is unsurprising because in the past it has been criticised for being too profligate with its loans to governments which do not always spend the money wisely.

They also say that the Bush administration in the US will put pressure on the IMF to keep a tighter control of its loans.

Last week the US State Department urged the Kenyan parliament to pass the bill.

However, critics say that the defeated bill was poorly drafted and would have only papered over the problems of corruption and economic mismanagement.

Kenya's worst recession since independence might get even worse

Kenya has traditionally had the region's strongest economy, but now lags far behind east African neighbours Tanzania and Uganda in terms of direct foreign investment.

Some businessmen say the discrepancy is due to concerns about graft and incoherent economic policy.

Mwai Kibaki, leader of the opposition Democratic Party, said this was why opposition MPs had voted against the bill.

He described the bill that was rejected as "a gimmick by the corrupt elements in the present government", adding "We want a law that can fight corruption."

President Moi, however, sought to reassure those who feared that this defeat meant the end of the fight against graft.

"The government has all the machinery available to deal with corruption and it (the campaign against corruption) is going to intensify using the present prosecutors, and so we are going to move on," he said.