Economic Resilience in a Challenging International EnvironmentOpening remarks at the 2013 Nairobi Conference
Antoinette M. Sayeh
September 17, 2013
Your Excellency President Kenyatta,
Honorable Cabinet Secretary,
Governor of the Central Bank of Kenya,
Ladies and Gentlemen
Good morning. I would like to express my appreciation to President Kenyatta for his remarks today and for his support for this important conference.
Kenya’s economic gains over the past few years are impressive, particularly coming as they have in a context of global weakness and uncertainty. I am very much looking forward to hearing from all of the experts who will be speaking over the next two days. There is a great deal to learn about the topics on the agenda.
There is also a great deal that is relevant to Africa from Kenya’s experience and how it addresses the challenges ahead. This is a region experiencing a burst of growth and optimism, and today’s conference is relevant to the new view of a continent on the rise. Indeed, Africa Rising will be the topic of a major conference that the IMF and the Mozambican government will jointly hold in Maputo in May 2014—where we will address on a regional basis many of the themes on today’s agenda. This is the first stop on what we are calling the Road to Mozambique. I hope that we will see many of you in Maputo next May, because Kenya’s experience will be a part of the discussions to come.
I will focus my remarks this morning on three broad themes: First, a brief look at the immediate outlook for global growth; second, where Sub-Saharan Africa stands in the current environment; and third, the opportunities and challenges that Kenya faces in its quest to reach emerging-market status. My main message is that Africa is moving forward, and the world is taking note of its dynamism. Kenya is one of the countries where Africa’s recent progress is evident and where the opportunities for economic transformation and growth are manifest. Of course, much remains to be done and the gains are by no means automatic. The issue therefore is defining and implementing the policies that will enable Kenya to seize these opportunities.
The Global Outlook
On the global front, a recovery is underway. But the recovery remains subdued and the underlying dynamics are changing. Recent indicators show that advanced economies have begun to gather momentum, particularly the United States, where private demand is relatively robust, and Japan, where the government has taken important steps to stimulate growth. Europe is emerging from a deep recession, but for the recovery to be sustained, European policymakers will need to continue their reform efforts at the level of the Eurozone and in individual countries.
At the same time, emerging market economies are now slowing after several years in which they led global growth—something that I know has been of crucial importance to Kenya and Africa. Talk of “tapering” the monetary stimulus of the U.S. Federal Reserve has heightened volatility in financial markets and tightened financing conditions for some emerging market economies. Outstanding domestic reforms have become more pressing as the room for home-grown stimulus recedes.
So while there is reason to take comfort from the recent developments in advanced economies, we must remain fully aware of the downside risks. The IMF welcomes the St. Petersburg Action Plan of the G-20, which stresses the importance of cooperation as countries address the challenges of promoting global growth, jobs, and financial stability. The action plan recognizes the need for fiscal consolidation to reflect economic conditions, the need to push forward on financial oversight and regulation, and the importance of comprehensive structural reforms to support growth – all of which are relevant for Sub-Saharan Africa as it becomes increasingly integrated in the global economy.
A Continent on the Rise
Economic performance in Sub-Saharan Africa has been strong in recent years, despite the adverse global environment. The region has proved remarkably resilient to the global crisis in 2008-09, and many countries have experienced sustained increases in per-capita income, lifting living conditions and reducing poverty. But let me be clear on this: these gains need to be sustained and extended to many more countries. And within countries, growth needs to be more widely shared to help address the immense social problems and provide employment opportunities for its young and growing populations. There can be no complacency about Africa’s economic success. Poverty remains unacceptably high and progress toward the Millennium Development Goals remains insufficient. Nevertheless, we can now say that the economic stagnation that characterized the final decades of the 20th century is in the past. Let it stay there.
Africa’s strong economic performance reflects many political, social, and economic changes over the past two decades. This is not just the result of rising prices for commodity exports. In fact, many of the fast-growing economies are not natural resource exporters – Kenya is one example. Political stability has clearly improved as the continent moved beyond the ideological strife of the Cold War and the regional conflicts that flared in the ‘80s and ‘90s. More and more countries are democracies.
Another major change concerns the quality of economic policies. Many governments have given a greater role to market forces and improved macroeconomic stability. Prudent monetary policies have reduced inflation and built foreign reserve buffers. Fiscal reforms – bolstered by debt relief – have reduced budget deficits and lowered public debt. This has greatly helped countries deal with the external and domestic shocks of recent years, as you well know in Kenya!
Economic growth is spreading deeper and deeper roots. Information technology is rapidly transforming the economic landscape, by bridging the distance between Africa and the global economy and providing financial services to millions who have never had such access. Pent-up consumption from a growing middle class and rising investment have turned domestic demand into an engine of growth in many countries. Foreign investment has started to flow in response to higher returns from economic activity and improved business climates. At the same time, countries have diversified their economic relations. Africans are trading more among themselves and more with non-traditional partners in emerging Asia and Latin America. The participation of speakers from these countries at this conference is testimony to that change.
We expect robust African growth to continue in 2014, but policy makers need to be prepared for headwinds from the uncertain global economy, the risks of a reversal of capital flows, and declining commodity prices. So policies should aim at maintaining room for policy maneuver in the event that these headwinds intensify. To sustain growth and make it more inclusive, capital spending and social spending must remain priorities.
In this changing environment, the relationship between the IMF and its African members has also evolved. African voices are heard more, African countries participate as creditors as well as debtors, and our dialogue has been characterized by partnership rather than confrontation.
Kenya: Economic reforms pay off!
Let me now turn to Kenya. Your country has made major strides and is an example of the continent’s market-driven economic dynamism. This has not happened by chance. Rather, it reflects efforts to anchor economic stability through sound fiscal and monetary policies and market-oriented structural reforms.
In fact, Kenya has stayed the course of economic reforms, with good results:
- Inflation has been tamed. Economic growth has maintained a good pace, despite the less than favorable global economic environment. International reserves are on the rise and the public debt profile has improved. Financial inclusion is advancing rapidly, giving millions of people a stake in the economy. Foreign investment flows have risen and boosted the stock market.
- Key achievements in structural reforms should not be understated. The World Bank’s Country Policy and Institutional Assessment (CPIA) for Kenya has now risen to the top in Sub-Saharan Africa. In particular, better public financial management has increased accountability and reduced the scope for corruption – which remains an issue. Improved management of public resources also has created the basis for an orderly fiscal decentralization process.
Kenya is now less vulnerable to the vagaries of the global economy and to domestic generated shocks than it was three years ago, when it embarked on its economic reform program with financial support from the IMF. By and large, the foundations for faster and lasting growth have been laid. This does not mean that the task is over. If anything, now is the time to redouble efforts to build upon the foundations of success. And a key task for the public finances, as reflected in the agenda of this conference, is to raise the efficiency and quality of public spending. This will create fiscal space, which is obviously important for infrastructure, where large gaps remain, but also for social spending, where it is particularly important to ensure that scarce public resources are used well. The ongoing fiscal decentralization provides an opportunity to improve accountability and the quality of service delivery, but will need to be well-managed to guard against the risk of excessive spending because of overlapping functions. This underscores the need for capacity building in public financial management at the county level.
The IMF has fully supported Kenya’s reform program, through both financial resources and capacity-building assistance in monetary policy and public financial management. More recently, we have started providing support on global best practices in the management of natural resource revenues. We look forward to continuing our partnership with Kenya.
Ladies and gentlemen,
This conference promises to address many of the critical economic issues I’ve raised. I look forward to the discussions over the next two days and to hearing your views.
Thank you very much.