A staff team from the International Monetary Fund (IMF), led by Benedict
Clements, visited Kenya from December 10-20, 2018, to hold discussions on a
new IMF-supported program.
At the end of the visit, Mr. Clements made the following statement:
“Kenya’s economy has continued to perform well, with real GDP growth
accelerating to 6 percent in the first half of 2018, from 4.9 percent in
2017. The acceleration of growth is being driven by a strong recovery in
agriculture due to improved weather conditions, resilient performance of
services sectors, and sustained confidence in the economy. Inflation
remains within the authorities’ target range (5+/-2.5 percent), supported
by lower food prices and an appropriate monetary policy. Headline inflation
stood at 5.6 percent y/y as of November 2018.
“Despite difficult circumstances, a significant fiscal adjustment was
achieved in the fiscal year ending in June 2018. The deficit declined to
7.5 percent of GDP from 8.9 percent of GDP the previous year. However,
revenues were significantly lower than budgeted and 0.4 percentage points
of GDP lower than the previous fiscal year. As a result, the fiscal
consolidation was primarily achieved by reducing public investment. To
arrest the decline in revenue, the authorities adopted a series of
revenue-raising measures in September 2018. While these measures will go a
long way to further reduce the fiscal deficit to a targeted 6 percent of
GDP in the current fiscal year, some spending restraint may still be
necessary.
“The external current account deficit narrowed to 5.3 percent of GDP in the
year to September 2018 from 6.3 percent of GDP in 2017. This reflects
improved agriculture exports, rising tourism receipts, strong diaspora
remittances, and lower SGR-related capital goods imports. External buffers
remain healthy with foreign exchange reserves at about US$8.0 billion as of
end-November 2018.
“The banking sector remains stable and resilient, and it is well
capitalized and liquid.
At the same time, the banking system’s non-performing loans ratio remains
high, although falling from a peak of 12.7 percent in August 2018 to 12.3
percent in October 2018. Growth in credit to the private sector remains
subdued, with credit growth averaging 3.2 percent y/y since the interest
rate controls were adopted in September 2016. Although credit growth
improved slightly to 4.4 percent y/y in October 2018, much stronger growth
will be necessary to sustain high economic growth.
“Discussions focused on (i) fiscal policies to achieve the fiscal deficit
target of 6 percent of GDP in fiscal year 2018/19 and further fiscal
consolidation in fiscal year 2019/20; (ii) policies to support higher
credit growth to the private sector; and (iii) 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.
“Significant progress was made during the visit, and discussions will
continue in the coming period. 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; Mr. Joseph
Kinyua, Chief of Staff and Head of the Public Service; 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 representatives of the private
sector and development partners.
