IMF Survey : Frontier Economy Kenya Progresses with Financial Inclusion
September 20, 2013
- Kenya’s strong growth follows sound economic policies, far-reaching reforms
- Major priority is employment for Kenya’s young, rapidly growing population
- Financial inclusion hailed as sustainable solution to nation’s poverty problem
Kenya’s policy of financial inclusion—making financial services more accessible to the general population—will help the East African country solve its poverty problem, a conference in the Kenyan capital, Nairobi, heard.
Africa has emerged as one of the fastest-growing regions in the world since the global financial crisis, sparking optimism about the continent’s future among governments, investors, and Africans who are experiencing a rising standard of living. This optimism was on display during the Nairobi conference on Kenya’s economic prospects that was jointly sponsored by the Kenyan government and the IMF.
Ready for Take Off: Kenya’s Successes, Prospects and Challenges addressed a wide spectrum of issues that reflect the country’s emergence as a frontier economy in East Africa, including financial sector development, infrastructure, the harnessing of recently discovered natural resources, and the many aspects of inclusive growth. At its heart, the conference offered an in-depth examination of the recent resilient macroeconomic performance of Kenya—and Africa—at a time of global economic uncertainty.
“Africa is moving forward, and the world is taking note of its dynamism,” said Antoinette Sayeh, Director of the IMF African Department, in remarks opening the conference. “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.”
International cooperation on economic development was a central theme of the Nairobi event, as underlined by Kenyan President Uhuru Kenyatta in his speech to the conference. “We appreciate the contemporary framework of engagement, which focuses on mutual partnership as opposed to prescription and patronage,” he said. “This is refreshing. It is also pragmatic since it recognizes Kenya's, and Africa’s, innate potential for growth.”
Over the past three years, Kenya has experienced strong growth—forecast at 5.5 percent this year—in response to significant economic reforms and sound macroeconomic policies. Inflation has remained close to the government’s target of 5 percent. The country’s external position has improved substantially despite surging capital imports for oil exploration, and foreign investment flows have risen sharply.
One of Kenya’s successes is in the area of financial inclusion, a crucial part of the effort to make serious inroads against the deep poverty experienced by millions of Kenyans, many of whom remain outside the formal financial system. “Financial inclusion is a public policy that is going to help us solve the poverty problem sustainably,” said Njuguna Ndung’u, Governor of the Central Bank of Kenya. He added that the recent growth of mobile phone banking “provides an opportunity to reach mass markets efficiently and effectively.”
The high-level conference attracted a broad range of participants from the Kenyan government and private sector, Kenya’s civil society groups, foreign investors, development partners, and international financial institutions.
The conference was the first stage of a nine-month leadup to a May 2014 conference in Mozambique that will be sponsored by the Mozambique government and the IMF. The conference will bring together senior African officials, business leaders, academics, civil society figures, and others to discuss the core development issues that many countries face as they build upon their recent economic success. The Road to Mozambique will include several events in Africa and elsewhere addressing issues similar to those on the agenda in Kenya.
Vimal Shah, Chairman of the Kenya Private Sector Alliance, presented the employment issue in stark numbers. Kenya’s population, currently about 43 million, is projected to grow to about 67 million by 2030. That means that roughly 27 million new jobs will need to be created, or 112,500 jobs per month over 17 years. He called for policies that place a priority on job creation. “We need a serious policy, and then it becomes inclusive,” he said.
Among the speakers were representatives of emerging market countries that have become Africa’s most important source of investment capital and foreign aid in recent years, including China, India, and Korea. Speaking at a session on the role of the private sector in Kenya’s economic development, T.C.A. Ranganathan, Chairman and Managing Director of the Export-Import Bank of India, offered a view characteristic of the emerging markets’ perspective on the region. “Africa is a continent on the rise,” he said. “East Africa is a shining example, and Kenya is one of the shining stars.”
The conference also devoted considerable attention to the next steps in Kenya’s efforts to build the policy framework for future growth. In her speech, Sayeh emphasized the importance of continued progress of Kenya’s reform effort. “Now is the time to redouble efforts to build upon the foundations of success,” she said.
Use of public resources
A key task for the public finances would be to raise the efficiency and quality of public spending, Sayeh stated. “This is will create fiscal space, which is obviously important for infrastructure, where large gaps remain, but also in social spending, where it is particularly important to ensure that scarce public resources are used well.”
The IMF has worked closely with Kenya over the past three years as it has begun to record significant economic gains under an IMF-supported program that has provided Kenya with $700 million through the Extended Credit Facility. The IMF has also provided extensive technical assistance and training to government officials.
Henry Rotich, Cabinet Secretary for Kenya’s National Treasury, summed up Kenya’s commitment at the close of the conference. “This conference will work to assist us to improve our development program and assure a smooth take off in a sustainable manner,” he said.