We have no control over mega projects, says Central Bank of Kenya Governor

Central Bank Governor Patrick Ngugi stresses a point on the weakening shilling when he appeared before the Senate Committee on Finance, Commerce and Budget yesterday. [PHOTO MOSES OMUSULA/STANDARD]

 

The Central Bank says it is helpless getting information on large infrastructural projects that impact on the value of the shilling. Central Bank of Kenya (CBK) Governor Patrick Ngugi yesterday said although large importation of capital goods has partly affected the value of the shilling, the bank has no information on the benefits that such projects bring to the country as its role is purely advisory.

The shilling has lost about 10.8 per cent to the dollar this year to trade at 101.45/55 to the US currency by yesterday, from about Sh90 early this year. Dr Ngugi told the Senate Committee on Finance, Planning and Trade in Nairobi that Treasury is responsible for the cost benefit analysis of the projects such as the standard gauge railway.

He said CBK only has information on the financing aspect of the projects. “I would like to believe that our advice is taken. Even when we meet one on one with Treasury Cabinet Secretary, we make recommendations. But at the end of the day, there may be concerns that we are not privy to information such as the cost benefit analysis,” said CBK boss.

“All we have is a clear sense of the financing of the projects.” He said importation of heavy machinery and equipment plays a key part in declining foreign reserves and negative effects of such importations must be mitigated by short-term and long term benefits of the projects.

The shilling has taken a beating from major foreign currencies, raising concerns on inflation and other negative economic benefits.

Other factors cited as being responsible for the shilling’s decline include poor returns from tourism and traditional exports such as tea and coffee.

“One gets the impression that the State does not take your advice,” observed Committee Chair Billow Kerrow (Mandera). “What kind of advice do you give? This thing is bigger than everyday management of monetary policy,” noted  Nyeri Senator Mutahi Kagwe.

Although the CBK sold $354 million (Sh35.4 billion) between January and June to shore up the shilling, there have been marginal shifts in the negative trend displayed by the local unit. “In large infrastructural projects, we need to be extremely careful that the benefits are quantified, because once you start the project, it is difficult to stop,” said Njoroge.

The governor said the shilling’s volatility will be halted before it translates into negative inflationary effects. He was also taken to task by the senators when he claimed that CBK has not set an optimal rate at which the  shilling should trade against the greenback.

“We don’t have such a target in mind. Our role is to stem volatility in the market so that the movement of the currency is smooth and gradual... we are aware of the risks of targeting a particular exchange rate,” he explained.