Press Release No. 09/377

Press Release No. 09/377
October 30, 2009

An International Monetary Fund (IMF) staff team led by Michel Atingi-Ego, Senior Advisor in the African Department, visited Kenya during October 15-30, 2009, to conduct discussions for the 2009 Article IV consultation. The team held productive discussions with the Prime Minister, Raila Odinga, Deputy Prime Minister and Finance Minister, Uhuru Kenyatta, Central Bank Governor, Njuguna Ndung’u, other senior government and central bank officials, members of Parliament, representatives of the private sector, labor unions, religious organizations, and the donor community. Discussions focused on recent developments, policies to adjust to adverse shocks, and other structural policies to promote a pro-growth environment.

At the end of the mission, Mr. Atingi-Ego issued the following statement in Nairobi:

“Kenya is facing the challenge of adjusting to a series of shocks that have affected its economy since 2008. Shortly after it started to recover in the aftermath of the post-election violence, the economy was buffeted by rising world energy and fertilizer prices, a drought, the global economic recession, and more recently, another drought. The global economic crisis slowed export growth, tourism receipts, remittances, and private capital flows. Against this background, economic growth slowed from 7.1 percent in 2007 to 1.7 percent in 2008, and is projected at 2.7 percent, in 2009. Fiscal and external current account deficits widened. The exchange rate depreciated late in 2008, along with many currencies world-wide, but has since stabilized.

“The authorities’ policy response to the crisis was appropriate and timely. Thanks to prudent economic policies that helped reduce public debt as a share of gross domestic product (GDP), Kenya had the necessary space to ease fiscal policy and help sustain domestic demand in the face of slowing economic growth. The Central Bank of Kenya (CBK) adhered to its monetary target, and given the weakening demand for private sector credit, short term interest rates declined, contributing to an easing of budgetary pressures on domestic debt service. CBK’s international reserves which accumulated over a long period were used to partly finance the widening current account deficit in the face of mounting depreciation pressures on the exchange rate. Also, strengthened banking supervision helped ensure that the banking sector was well capitalized and liquid, and had adequately provisioned for non-performing loans.

“In the meantime, the IMF provided financial assistance to Kenya to help mitigate the adverse effects of the drought and the global financial crisis and rebuild foreign reserves. In June 2009, in response to the authorities’ request for financial assistance, the Fund provided about US$200 million under the rapid access component of the Exogenous Shock Facility (ESF). Later in the year, Kenya received about US$350 million through the general and special allocations of Special Drawing Rights (SDRs) to all IMF members.

“Economic performance is expected to improve gradually, but as risks remains, policies should aim at addressing emerging challenges and promoting sustainable high growth. Growth is projected to reach 4 percent in 2010 and rise gradually to 6.5 over the medium-term. In light of the risks facing the economy, macroeconomic management should remain geared towards achieving the inflation objective and promoting fiscal sustainability. In the structural areas, some progress has been made but more still needs to be done. Stepping up reforms will be important to promote value for money in public finance, enhance the competitiveness of the economy, and attract investment needed to diversify the economy and reduce its vulnerability to adverse shocks. Enacting several pieces of legislation that are still pending—including the banking, new deposit insurance and importantly the anti-money laundering bills—will further strengthen the functioning of the financial sector.

“The team and the authorities look forward to continuing a constructive dialogue on further macro-economic policy and structural reforms to stem any emerging economic challenges facing Kenya. Upon its return to Washington, the team will prepare the necessary documentation for presentation to the IMF’s Executive Board for a discussion tentatively scheduled for early December.

“The staff team thanks the Kenyan authorities for their close collaboration and the useful exchange of views during its stay in Nairobi.”