IMF Staff Concludes Visit to Kenya

IMF News, December 21, 2018

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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.
End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Real GDP growth accelerated to 6 percent in the first half of 2018, from 4.9 percent in 2017.
The acceleration of growth is attributed to:
- a strong recovery in agriculture due to improved weather conditions;
- resilient performance of services sectors; and
- sustained confidence in the economy.
Inflation:
- Authorities’ target range: 5+/-2.5 percent.
- Headline inflation stood at 5.6 percent y/y as of November 2018.
- Lower food prices and an appropriate monetary policy supported inflation within the target range.

Fiscal adjustment in the fiscal year ending June 2018:
- Overall deficit declined to 7.5 percent of GDP from 8.9 percent of GDP the previous year.
- Revenues were significantly lower than budgeted and 0.4 percentage points of GDP lower than the previous fiscal year.
- Fiscal consolidation was primarily achieved by reducing public investment.
Policy actions:
- Authorities adopted a series of revenue-raising measures in September 2018 to arrest the decline in revenue.
- These measures are expected to help reduce the fiscal deficit to a targeted 6 percent of GDP in the current fiscal year.
- Some spending restraint may still be necessary.

External current account:
- Narrowed to 5.3 percent of GDP in the year to September 2018 from 6.3 percent of GDP in 2017.
- Improvement reflects improved agriculture exports, rising tourism receipts, strong diaspora remittances, and lower SGR-related capital goods imports.
External buffers:
- Foreign exchange reserves at about US$8.0 billion as of end-November 2018.
- External stability was highlighted as a policy objective.

The banking sector remains stable, resilient, well capitalized, and liquid.
Non-performing loans (NPLs):
- NPL ratio peaked at 12.7 percent in August 2018 and fell to 12.3 percent in October 2018.
Credit growth to the private sector:
- Averaged 3.2 percent y/y since the interest rate controls were adopted in September 2016.
- Improved slightly to 4.4 percent y/y in October 2018.
- Much stronger credit growth will be necessary to sustain high economic growth.

Discussions focused on:
- 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.
- Policies to support higher credit growth to the private sector.
- Structural reforms to ensure the sustainability of investment-driven, inclusive growth.
Authorities reiterated commitment to:
- maintain public debt on a sustainable path;
- contain inflation within the target range; and
- preserve external stability.
The IMF team reported significant progress during the visit and indicated discussions will continue.

The team met with:
- Cabinet Secretary for the National Treasury, Mr. Henry Rotich;
- Governor of the CBK, Dr. Patrick Njoroge;
- Mr. Joseph Kinyua, Chief of Staff and Head of the Public Service;
- Principal Secretary for the National Treasury, Dr. Kamau Thugge;
- Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe; and
- senior government and CBK officials.
Staff also held productive discussions with representatives of the private sector and development partners.

Press Release No. 18/493 — December 21, 2018. IMF Communications Department.