## Kenya at the Economic Frontier: Challenges and Opportunities, by Christine Lagarde, Managing Director, International Monetary Fund

_IMF News, January 6, 2014_

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## Bibliographic details
- Authors: Christine Lagarde Kenya Private Sector Alliance Forum Nairobi
- Published: January 6, 2014

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### Introduction
- Speech delivered at the Kenya Private Sector Alliance Forum, Nairobi, January 6, 2014; "As prepared for delivery."
- Kenya's recent growth credited to a vibrant service sector, consolidation as a regional hub, and impressive progress in financial inclusion.
- Growth noted as "more than 5 percent in 2013."
- IMF partnership highlighted: financial support through the Extended Credit Facility and technical assistance; IMF Executive Board approved successful completion of the program.
- Emphasis on Kenyan ownership of reforms and need to deepen and broaden achievements to increase resilience and share benefits of growth.

### The Global Economic Environment
- Global recovery described as uneven and subdued; dynamics shifting.
- Advanced-economy developments:
  - United States: private demand robust; Federal Reserve signaled eventual normalization in financial conditions.
  - Japan: government steps to stimulate growth.
  - Europe: slowly emerging from a deep recession with remaining challenges.
- Emerging market economies slowing after several years as main engine of global growth; this slowdown is of particular concern for Kenya and Africa.
- Risks identified:
  - Heightened volatility in financial markets as financial conditions in advanced economies normalize.
  - Potential spillovers from emerging market economies to Sub-Saharan Africa, especially financially integrated countries such as Kenya.

### The Outlook for Sub-Saharan Africa
- Regional performance:
  - Sub-Saharan Africa remains the second-fastest-growing region in the world—"5.6 percent on average over the past decade."
  - IMF projections (October): "5 percent in 2013 and close to 6 percent in 2014."
- Positive contributors to resilience: low inflation, reduced levels of public debt, and adequate reserve levels.
- Benefits of growth: higher living standards and poverty reduction in many countries.
- Risks and policy warnings:
  - Threats from slower demand in emerging market economies.
  - Unfavorable changes in commodity prices.
  - Higher financing costs.
- Policy message: no complacency; Africa must grow faster to address social problems, create jobs for a young and growing population, and accelerate progress toward the Millennium Development Goals.
- IMF engagement: planned conference on "Africa Rising" in partnership with Mozambique to take stock of successes and challenges.

### Kenya — The Quest for Middle-Income Status
- Kenya characterized as a "frontier" economy with an impressive turnaround due to economic, political, and social changes.
- Economic policy achievements:
  - Prudent policies anchoring strong and stable growth.
  - Fiscal discipline improving external and domestic debt positions.
  - A more modern framework for monetary policy helped keep inflation expectations in check.
  - Stronger supervisory powers maintained financial stability amid rapid financial system expansion and opening capital markets.
- External position: strong enough to tap international financial markets with the planned Eurobond issue.
- Vulnerabilities and resilience measures:
  - Increased global integration exposes Kenya to external shocks via trade and financial market volatility.
  - Recommendations: further bolster foreign reserve position and lower debt burden to enhance resilience.
- Political developments:
  - Implementation of the 2010 Constitution and peaceful March 2013 elections.
  - New checks and balances increasing transparency and accountability in public resource management.
- Financial inclusion:
  - Kenya "boasts the highest share of population with access to financial services in Sub-Saharan Africa (more than 70 percent)."
  - Result: previously unbanked millions now have a stake in the economy; younger generation increasingly empowered.

- Key priorities framed as the "Three C's":
  - Completing fiscal devolution
    - Devolution and fiscal decentralization are important but complex with significant risks.
    - Successful implementation is crucial to secure access to resources across the country and ensure all regions benefit.
    - Implementation requirements: spending within available public resources, transparency, and avoidance of duplication between central and local government.
    - Potential benefits: bolstered social cohesion, increased accountability, improved quality of service delivery, and new private sector opportunities in counties.
  - Closing infrastructure gaps
    - Large infrastructure gaps must be tackled to raise growth and create jobs.
    - Natural resource wealth is an opportunity that must be exploited wisely and transparently.
    - Kenya is building a fiscal and regulatory regime for natural resource revenues to provide transparency and a stable revenue base.
    - Fiscal resources should be prioritized and project quality closely scrutinized.
    - IMF stands ready to provide extensive technical assistance.
    - Foreign investment should be encouraged for major projects (examples cited: modern railway line from the coastal area to neighboring countries; expansion of geothermal power generation), provided financing remains consistent with a sustainable debt position.
  - Continuing regional integration
    - Kenya is a leader in regional integration, the second largest investor in the region, and a strong advocate within the East African Community.
    - Regional integration opened new markets, supported a middle class, and enabled domestic demand as an engine of growth.
    - Heads of state of the East African Community agreed on a roadmap toward a monetary union—an opportunity and a major challenge.
    - Recommendation: draw on experiences from other regions, manage the process carefully, and utilize IMF technical assistance as needed.

### Conclusion
- Kenya's transformation attributed to public sector leadership and a vibrant private sector partnership.
- Education emphasized: universal primary education is impressive, especially for girls; importance of continued access at secondary and university levels stressed.
- Kenya's path to middle-income status is ongoing; momentum should be built upon.
- Closing admonition and encouragement: "Pamoja twasonga mbele" — "Together we are moving forward."

*Source: Kenya at the Economic Frontier: Challenges and Opportunities, by Christine Lagarde, January 6, 2014.*

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## References

- [Kenya and the IMF](http://www.imf.org/external/country/KEN/index.htm)
- [Technical Assistance -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-capacity-development)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [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/sp010614_