## IMF Survey: IMF Shocks Loan, Policy Changes Help Kenya's Recovery

_IMF News, January 8, 2010_

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## Bibliographic details
- Authors: Iyabo Masha IMF African Department January
- Published: January 8, 2010

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### Economic health check — key findings and statistics
- Kenya’s real GDP growth is projected to accelerate to 3.2 percent in 2009/10, from 2.2 percent in 2008/09.  
- Growth is likely to be subdued at least until 2011/12 and remains below precrisis rates.  
- Kenya’s strong growth momentum during the 2004–07 period stalled in 2008 due to post-election violence, high fuel and food prices, and domestic drought affecting maize production.  
- Official foreign exchange reserves fell by almost $800 million (about 20 percent of the stock of reserves) between mid-2008 and early 2009.  
- On the capital market, the key share index on the Nairobi Stock Exchange declined by 35 percent in 2008.  
- The global financial crisis led to steep declines in private capital flows, subdued exports, and weakened tourism receipts.

### Financing gaps and IMF assistance
- In mid-2009 Kenya requested IMF financial assistance under the rapid access component of the Exogenous Shocks Facility.  
- The IMF loan drawdown amounted to $200 million in June 2009 and helped close financing gaps estimated for 2008/09 and 2009/10 while enabling an orderly rebuilding of foreign reserves.

### Policy adjustments contributing to recovery
- Overall: IMF financing, coupled with policy adjustments and implementation of some structural measures, is contributing to a nascent economic recovery in 2009/10.

- Fiscal policy
  - Aimed to be countercyclical to mitigate shocks on the poor and vulnerable and to stimulate the economy.  
  - The 2009/10 budget targeted additional expenditure on infrastructure, food security, and pro-poor programs.  
  - The government departed only moderately and temporarily from its fiscal anchor of a 40 percent ratio of debt to GDP, leveraging past progress in reducing public debt-to-GDP ratios to create fiscal space.

- Monetary policy
  - The Central Bank of Kenya pursued a countercyclical monetary stance since the onset of the global financial crisis.  
  - The policy interest rate and the cash reserve requirement were reduced by a total of 125 and 150 basis points respectively during 2008–09.  
  - These measures, together with weakening aggregate demand, provided ample liquidity and kept interest rates subdued.  
  - Growth of monetary aggregates remained below target, and revised consumer price data indicate the inflation environment has been relatively benign.

- Financial sector policy
  - The central bank stepped up supervision of banks to detect emerging stresses and accommodated urgent financial needs of banks.  
  - Commercial banks tightened appraisal of new credit facilities, increased monitoring of existing credit portfolios, and limited exposure to foreign currency risks.  
  - To deepen capital market operations, the minimum capitalization of investment banks and stockbrokers was increased.

- Exchange rate policy
  - Kenya maintained a floating exchange rate regime with interventions limited to smoothing excessive volatilities and rebuilding reserves.  
  - This approach supported macroeconomic stability by helping absorb terms-of-trade and other exogenous shocks.

### Next steps — recommended structural reforms and implementation priorities
- Frontloading infrastructure investment in the 2009/10 budget is welcome, but strong implementation of structural reforms is needed to achieve the government’s vision of making Kenya a middle-income country by 2030.  
- Fiscal policy implementation
  - Enact the Public Finance Management Bill to revise the legal framework for public finance management and ensure appropriate budget execution, accounting, and internal audit.  
  - Enact the Public Private Partnership Bill to establish a framework for regulating PPP operations and managing associated risks.

- Financial sector stability and development
  - Address shortcomings in supervisory and regulatory frameworks for both the banking system and the capital market.  
  - Enact the Banking Act (Amendment) Bill to authorize consolidated supervision and prompt corrective action by the central bank.  
  - Enact the Deposit Insurance, National Payment System, and Demutualization of the Stock Exchange bills to enhance capital market depth and regulation.

*Source: IMF Survey: IMF Shocks Loan, Policy Changes Help Kenya's Recovery (January 8, 2010).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Press release](https://www.imf.org/external/np/sec/pn/2010/pn1002.htm)
- [Kenya and the IMF](https://www.imf.org/external/country/ken/index.htm)
- [Africa’s recovery signs](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR010710A.htm)
- [Africa’s new growth engines](https://www.imf.org/external/pubs/ft/survey/so/2009/CAR112309A.htm)
- [Africa regional outlook](https://www.imf.org/external/pubs/ft/reo/2009/AFR/eng/sreo1009.htm)
- [Blog: IMF helps Africa](http://blog-imfdirect.imf.org/2009/09/10/imf-helping-africa/)
- [IMF revamps shocks loans](https://www.imf.org/external/pubs/ft/survey/so/2008/POL091908A.htm)
- [requested IMF financial assistance](https://www.imf.org/external/pubs/cat/longres.cfm?sk=23034.0)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar010810a_