IMF Executive Board Completes First Review Under Extended Credit Facility for KenyaPress Release No. 11/266
June 29, 2011
The Executive Board of the International Monetary Fund (IMF) has completed the first review under a three-year arrangement under the Extended Credit Facility (ECF) for Kenya1. The completion of the review enables the disbursement of SDR 43.424 million (about US$65 million), which will bring total disbursements under the arrangement to SDR 108.56 million (about US$163 million). The Executive Board’s decision was taken on a lapse of time basis2.
Kenya’s economic reform program is off to a good start. Economic activity rebounded in 2010 with GDP growth of 5.6 percent, driven by strong agricultural production and a dynamic private sector. The growth was broad-based and the sharing of its benefits was supported by policies to promote financial inclusion. Strong growth continues in 2011, with the exception of the agricultural sector, expected to decelerate significantly as a result of weather disturbances in the first months of the year. The outlook for private investment remains positive, with new foreign investors reinforcing the upward trend in capital expenditure by firms already operating in the country. However, recent inflationary pressures have emerged as a result of the global increase in food and fuel prices, insufficient rains, and growing domestic demand.
Performance under the program has been satisfactory. The fiscal outcome for 2010/11 (July-June) is likely to be better than projected and the Central Bank of Kenya has tightened monetary conditions to deal with the emerging inflationary pressures. The authorities also made good progress with their structural reform efforts and reaffirmed their commitments to the program, including on the adoption of a new public financial management law covering all levels of government that will strengthen expenditure control and increase accountability.
Looking forward, the key priorities will be to curb inflation and to strengthen the external position in response to the widening of the current account deficit. The focus of monetary policy should thus be on controlling demand pressures in order to preserve macroeconomic stability and to ensure that the recent burst of inflation does not become entrenched. The 2011/12 budget reflects the authorities’ commitment to gradual fiscal consolidation over the medium-term, while addressing the country’s development needs and providing sufficient scope for the implementation of the new Constitution. The envisaged improvement of the fiscal primary balance should place the government’s debt-to-GDP ratio on a declining path. Welcome efforts to broaden financial inclusion and deepen the financial markets will need to be supported by strengthened banking supervision and enhanced regulatory frameworks.
The Executive Board approved a three-year ECF for Kenya on January 31, 2011 (see Press Release No. 11/21).
1 The IMF’s framework for ECF is designed for low-income countries that need IMF financial assistance.
2 The Executive Board takes decisions under its lapse of time procedures when it is agreed by the Board that a proposal can be considered without convening formal discussions.