A team from the International Monetary Fund (IMF), led by Benedict
Clements, visited Kenya from April 3 to 13, 2017, to conduct Article IV
consultations and hold discussions on the second reviews under a
precautionary Stand-By Arrangement and a Stand-By Credit Facility
(SBA/SCF).
On March 14, 2016, the Executive Board of the International Monetary Fund
(IMF) approved a SDR 709.259 million (about US$989.8 million) 24-month
Stand-By Arrangement (SBA)
and a SDR 354.629 million (about US$494.9 million) 24-month
Standby Credit Facility (SCF)
for Kenya, for a combined SDR 1.06 billion (about US$1.5 billion, or 196
percent of Kenya’s quota). The first review was completed on January 25,
2017 (
see Press Release 17/23
). The Kenyan authorities have indicated that they will continue to treat
both arrangements as precautionary, and do not intend to draw on the new
SBA and SCF arrangements unless exogenous shocks lead to an actual balance
of payments need.
At the end of the visit, Mr. Clements released the following statement:
“Kenya’s economy has continued to perform well, with real GDP growth
reaching 5.9 percent in the first three quarters of 2016, up from 5.6
percent in 2015. Growth was supported by public investment spending,
favorable weather in the first half of 2016, and a pick-up in tourism.
Inflation has increased to 10.3 percent in March, reflecting the reduced
supply of key staple food items as a result of the drought, but is expected
to decline as agricultural production returns to normal levels with the
onset of the long rains. The banking system has remained stable, and
reforms by the Central Bank of Kenya (CBK) to strengthen the financial
system continue.
“The external current account deficit (on a 12-month basis) narrowed to 5.5
percent of GDP in 2016 from 6.8 percent in 2015, reflecting lower oil
prices, improved tea and horticulture exports, and increased remittance
inflows. The exchange rate has remained stable and foreign exchange
reserves have risen to US$7.8 billion (equal to 5.1 months of import cover)
as of end-March 2017. The banking system has remained stable.
“Discussions focused on macroeconomic policies and structural reforms
aiming to ensure the sustainability of investment-driven, inclusive growth.
The authorities reiterated their commitment to macroeconomic policies that
would maintain public debt on a sustainable path, contain inflation within
the target range, and preserve external stability. To that end, the IMF
staff team urged the authorities to achieve the fiscal deficit target
envisaged under the program for 2016/17, which accommodates a substantial
increase in foreign-financed public investment.
“The team urged the authorities to move forward with the substantial
reduction in the budget deficit envisaged for 2017/18 and beyond, which
will help put the debt on a declining path as envisaged under the program.
The team also welcomed the authorities’ plans to accelerate reforms aimed
at (i) mobilizing revenue to support appropriate delivery of government
services at the national and county level; (ii) increasing the efficiency,
transparency, and accountability of public spending; (iii) safeguarding
financial stability by enhancing prudential regulation and supervision; and
(iv) deepening structural and governance reforms to improve the business
environment.
“The IMF team reiterated its concerns regarding the legislated limits on
deposit and lending rates introduced last September. Preliminary
information suggests that these controls have had unintended negative
consequences on the availability of financing for small and medium-sized
enterprises, with the risk of reversing the remarkable increase in
financial inclusion observed in recent years. In addition, interest rate
controls are undermining the effectiveness of monetary policy aimed at
ensuring price stability and supporting sustainable economic growth.
“Significant progress was made during the visit, and discussions will
continue in the coming weeks. The team thanks the authorities for their
hospitality and constructive discussions.”
The team met with the Cabinet Secretary for the National Treasury, Mr.
Henry Rotich; the Governor of the CBK, Dr. Patrick Njoroge; the Principal
Secretary for the National Treasury, Dr. Kamau Thugge; the Deputy Governor
of the CBK, Ms. Sheila M’Mbijjewe, and senior government and CBK officials.
Staff also had productive discussions with civil society organizations,
representatives of the private sector, and development partners.
