Staff of the International Monetary Fund (IMF) has concluded in their finding after visiting Kenya that the economy continued to perform well, with real GDP growth reaching 5.9 percent in the first three-quarters of 2016, up from 5.6 percent in 2015.
Compiled by Alpha Bedoh Kamara
The team from the International Monetary Fund (IMF), led by Benedict Clements, visited Kenya from April 3 to 13, 2017, to conduct Article IV consultations and hold discussions on the second reviews under a precautionary Stand-By Arrangement and a Stand-By Credit Facility (SBA/SCF).
While discussions focused on macroeconomic policies and structural reforms aiming to ensure the sustainability of investment-driven, inclusive growth, the team noted that growth was supported by public investment spending, favorable weather in the first half of 2016, and a pick-up in tourism.
“Inflation has increased to 10.3 percent in March, reflecting the reduced supply of key staple food items as a result of the drought, but is expected to decline as agricultural production returns to normal levels with the onset of the long rains. The banking system has remained stable, and reforms by the Central Bank of Kenya (CBK) to strengthen the financial system continue,” Clements said.
The first review was completed on January 25, 2017 ( see Press Release 17/23 ). The Kenyan authorities have indicated that they will continue to treat both arrangements as precautionary, and do not intend to draw on the new SBA and SCF arrangements unless exogenous shocks lead to an actual balance of payments need.
The team, however, urged the authorities to move forward with the substantial reduction in the budget deficit envisaged for 2017/18 and beyond, which will help put the debt on a declining path as envisaged under the program.
The team also welcomed the authorities’ plans to accelerate reforms aimed at mobilizing revenue to support appropriate delivery of government services at the national and county level; increasing the efficiency, transparency, and accountability of public spending; safeguarding financial stability by enhancing prudential regulation and supervision; and deepening structural and governance reforms to improve the business environment.
The IMF team reiterated its concerns regarding the legislated limits on deposit and lending rates introduced last September. Preliminary information suggests that these controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years. In addition, interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.