Press Release: IMF and Kenya Reach Staff-Level Agreement on US$500 Million Extended Credit Facility Program
November 23, 2010Press Release No. 10/455
November 23, 2010
An International Monetary Fund (IMF) mission was in Nairobi during November 3-18 to discuss economic policies that the IMF could support through an Extended Credit Facility (ECF). At the conclusion of the visit, Domenico Fanizza, Mission Chief for Kenya, issued the following statement:
“I am pleased to confirm that the mission has reached an agreement in principle with the Kenyan authorities on an economic program through December 2013, to be supported by a SDR 325.7 million (about US$500 million) Extended Credit Facility. The agreement reached with the authorities is subject to approval by the IMF’s management and Executive Board, which is scheduled to consider the request for the ECF in January 2011.
“The main goal of the authorities’ economic program is to transform Kenya into a dynamic economy by raising growth sustainably. The program focuses on creating fiscal scope for:
• Investing in infrastructure and the energy sector, especially geothermal power, which will help Kenya deal with the challenges from global warming.
• Spending to implement the new Constitution that will help to address the long-standing social and political problems holding back Kenya’s high growth potential.
“The program strikes a balance between devoting resources to these purposes and fiscal adjustment. The authorities target a gradual reduction of the fiscal deficit, which should bring the government debt-to-gross domestic product (GDP) ratio below 45 percent by 2013/14. Adequate spending in key priority social sectors and on targeted transfers to protect the vulnerable will continue.
“Building on the momentum generated by the new Constitution, the aim is at overhauling Kenya’s public financial management system and successfully decentralize fiscal administration. Tax policy reforms will seek to simplify the tax code, eliminate income tax exemptions, and revamp the value added tax (VAT).
“Monetary policy will focus on containing inflation within the 5 percent target, maintaining a floating exchange rate regime, and the gradual accumulation of international reserves to reduce Kenya’s vulnerability to external shocks. Financial sector reforms will further broaden access to financial services, bring down transaction costs, and eventually lower the spreads between deposit and lending rates.
“The authorities are working in parallel with the World Bank to create a better private investment climate and strengthen governance. Taken together, these policies and reforms will create the conditions for the fast and sustained economic growth needed to improve country-wide living conditions.”