Kenyan Government to enact new regulations to control use of petroleum revenues

The Kenyan government is set to enact laws to regulate use of petroleum revenues following continued oil discoveries in the country.

National Treasury Cabinet Secretary Henry Rotich said the new regime would prevent oil incomes being used for items such as public sector wages.

“Laws on managing revenue from resources have to be in place before you start exploiting them,” he said during the African Development Bank (AfDB)’s annual meeting in Rwanda.

Delegates at the meeting heard that the rush to build infrastructure, and pressure from citizens for swift rewards from oil and gas discoveries, have pushed some governments to loosen policy.

That has led to ballooning current account deficits, rising debt and fiscal shortfalls that threaten to take the shine off otherwise positive growth stories.

Resource-reliant Ghana and Zambia show how star economic performers can quickly face the heat. Ghana’s cedi and Zambia’s kwacha have hit record lows against the dollar this year as rising spending has strained state finances.

“It’s as if we haven’t learnt anything about macroeconomic management,” said Mthuli Ncube, chief economist at the AfDB, echoing other delegates at the bank’s meeting.

“The macro-policies are out of line, whether you are looking at budget deficits, current account positions, the debt positions and so forth,” he said.

Africa is the fastest-growing continent after Asia but it has a long way to go before its roads, railways, and schools or hospitals match infrastructure in other economies.

As rapid economic growth cuts donor aid as a proportion of gross domestic product, governments have turned to international markets to finance capital or other spending, but their credibility among investors could quickly crumble if fiscal discipline is not instilled.

“Initially, part of the investor appetite for sub-Saharan African sovereign debt was due to the fact that there was relatively little issuance, and that investors were becoming more attuned to the ‘Africa Rising’ story,” said Razia Khan, head of research for Africa at Standard Chartered bank in London.

“But this risks being eclipsed by the reality of fiscal management shortcomings,” she said.

Ghana, which began oil exports in 2010 and saw economic growth of 7.1 per cent last year, paid a premium for its Eurobond issued in July worth $750 million because of worries about its fiscal and current account deficit. Ghana’s yield of 8 per cent compared with 6.875 per cent on a $400 million bond issue in April by Rwanda, a state with few resources but a better reputation for public financial management.

Zambia, Africa’s biggest copper producer, is growing by about 6 per cent annually. But with an ambitious plan to upgrade its road network and other infrastructure, Fitch downgraded it as the budget deficit widened to 6.7 per cent of Gross Domestic Product (GDP) last year and the current account deficit hit 12 per cent.

The International Monetary Fund urged Ghana and Zambia last month to rein in their deficits to help deal with any shocks, as developed nations scale back economic stimulus that had encouraged investors to turn to Africa for higher yields.