IMF Executive Board Completes Fourth Review Under the ECF Arrangement for Kenya and Approves US$110.5 Million Disbursement

Press Release No. 12/396
October 24, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Kenya’s economic program under a three-year arrangement supported by the Extended Credit Facility (ECF). The approval enables an immediate disbursement of an amount equivalent to SDR 71.921 million (about US$110.5 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 344.678 million (about US$529.6 million). In completing the review, the Executive Board approved the request for a waiver for the non-observance of the performance criterion on the non-accumulation of external arrears for end-June 2012, and the modification of performance criteria for the next 12 months to fit the revised macroeconomic outlook.

The Executive Board approved a three-year ECF arrangement for Kenya on January 31, 2011 for a total amount equivalent to SDR 325.68 million (about US$500.4 million), or 120 percent of quota. The arrangement was augmented on December 9, 2011 for a total amount equivalent to SDR 488.52 million (about US$750.6 million), or 180 percent of quota.

Following the Executive Board’s discussion on Kenya, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:

“Economic activity in Kenya is rebounding after slowing down in 2011/12, helped by improved macroeconomic stability, foreign investment in oil and natural gas exploitation, and favorable weather conditions. Inflation has declined substantially, net international reserves have increased, public debt is low, and pressures on the exchange rate have dissipated. Kenya has also made progress in reducing its economic vulnerabilities. Downside risks remain, however, because of global uncertainties and spending pressures associated with the upcoming elections. Going forward, it will be important to maintain policy discipline to build on the accomplishments so far.

“Fiscal policy has remained on track. Revenue shortfalls in fiscal year 2011/12, arising mainly from the elimination of the VAT withholding regime, were offset by cuts in non-priority current and capital outlays. To boost revenue, the authorities are taking measures to strengthen VAT administration. It will be important to resist spending pressures in the run-up to the forthcoming elections.

“The Central Bank of Kenya’s tight monetary policy stance has helped bring inflation down. Given low inflation expectations, the Central Bank cut its policy rate recently, and there may be scope for further monetary easing if economic conditions warrant. However, the Central Bank should watch for new inflationary pressures that may emerge from higher global food and fuel prices.

“Structural reforms have also moved forward. The recently-approved Public Financial Management Law will help strengthen expenditure management and control, re-orient spending toward priority sectors, and improve fiscal transparency. The new VAT law is being debated in the National Assembly. Financial soundness indicators are healthy. Nevertheless, further efforts are being made to enhance financial regulation and supervision, deepen financial intermediation, and strengthen the regime against money laundering and terrorism financing.

“Looking forward, risks to the program arise from a weakened global financial conditions and rising oil prices, which could derail Kenya’s favorable economic performance. Further efforts to build policy buffers should enhance Kenya’s economic resilience and ensure a sustained and strong economic expansion,” Mr. Shinohara added.



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