On January 25, 2017, the
Executive Board of the International Monetary Fund (IMF) completed the
first review of Kenya’s performance under the program supported by the
Stand-By Arrangement (SBA) and an Arrangement under the Standby Credit
Facility (SCF). The 24-month SBA/SCF with a combined total access of SDR
1.06 billion (about US$1.5 billion) was approved by the IMF’s Executive
Board on March 14, 2016 (see
Press Release No. 16/110)
The Kenyan authorities have indicated that they will continue to treat both
arrangements as precautionary, and do not intend to draw on the SBA and SCF arrangements
unless exogenous shocks lead to an actual balance of payments need.
Following the Executive Board discussion on Kenya, Mr. Tao Zhang, Deputy
Managing Director and Acting Chair, said:
“Kenya’s economy has continued to perform well. Real GDP growth increased
in 2016, inflation remains within the target range, and the current account
deficit has narrowed.
“The macroeconomic outlook is overall positive, including robust growth and
reduced external imbalances. However, interest rate controls are likely to
reduce access to credit, weighing on growth. They also complicate monetary
policy and adversely affect banking sector profitability, especially for
small banks. Although the adverse effects of the controls are manageable in
the near term, if maintained, they could potentially pose a risk to
financial stability. Therefore, it is essential to remove these controls,
while taking steps to prevent predatory lending and increase competition
and transparency of the banking sector.
“The envisaged fiscal consolidation that targets a 3.7 percent of GDP
deficit by 2018/19 is critical to maintain a low risk of debt distress
while preserving fiscal space for development priorities. Continued public
financial management reforms, aimed at upgrading the efficiency of public
spending and expenditure control, are key to strengthening fiscal policies
and institutions.
“Establishing a formal interest rate corridor remains a priority for
strengthening the monetary policy framework. While adoption of such a
corridor has been delayed given the uncertainties created by interest rate
controls, it will be important to conduct liquidity operations to realign
interbank rates to the policy rate as economic conditions permit.
“The authorities are taking actions to strengthen financial stability and
to enforce reporting requirements. These include steps to implement the
action plan on banking regulation and supervision to enhance capacity to
monitor credit and liquidity risks and limit insider lending.
“Continued improvements in macroeconomic statistics and acceleration of
governance reforms will be essential to reinforcing efficiency,
transparency, and accountability.”
