Kenya: Staff Report for the 2014 Article IV Consultation

IMF Staff Country Reports, October 2, 2014

Source details

Kenya has embarked on major reforms in line with the 2010 constitution, and the new government has initiated devolution at a fast pace with a reporting framework to monitor progress and challenges.
Macroeconomic stability in a market-friendly environment continues to attract foreign investors.
Kenya placed its first US$2 billion Eurobond at favorable terms; proceeds are to be used to upgrade power generation and transportation.
Promising commercial prospects of oil discoveries could provide significant foreign exchange and fiscal resources.
Regional integration: Kenya is participating actively in East Africa integration and has shown progress in reducing delays from the port of Mombasa to Kampala and Kigali.
Financial sector developments:
- Kenyan banks are expanding their business models through East Africa and other regional countries while complying with upgraded prudential regulations.
- The Central Bank of Kenya (CBK) maintains proactive financial inclusion policies that have facilitated access to credit by small and medium enterprises.
Governance and security:
- Legal reforms led to the Financial Action Task Force removing Kenya from its watch list.
- Recent terrorist attacks and threats have raised security concerns, especially in coastal areas bordering Somalia.

Growth and fiscal stance:
- Growth is projected to accelerate to 5.8 percent in 2014/15, driven by higher public and private investment and measures to improve the business environment.
- The 2014/15 budget aims at rebalancing recurrent and development spending.
- Medium-term fiscal policies intend to bring down the debt burden consistent with the East African Community Monetary Union (EAMU) Protocol convergence criteria.
Monetary and price developments:
- Inflation remains broadly in check, but rising food prices and rapid credit growth require careful monitoring by the CBK.

Devolution and public financial management:
- Discussions centered on devolution implementation, particularly enforcement of accountability provisions.
- Some checks and balances are effective — for example, Treasury approval is required for guarantees for county borrowing — but a more systematic framework is needed.
- Staff and authorities agreed that the scale of transfers to counties magnified government cash management problems.
- The recently introduced Treasury Single Account (TSA) is expected to help address cash management problems and contribute to more effective monetary operations.
Natural resource governance:
- Discussions focused on designing the legal framework for natural resource management to ensure consistency with public finance management provisions.

Subject areas: Balance of payments statistics; Banking; Budget planning and preparation; Economic and financial statistics; External debt; Government finance statistics; Public debt; Public financial management (PFM).
Keywords: Africa; authority; Balance of payments statistics; Budget planning and preparation; CR; debt; deficit; devolved government system; East Africa; Global; Government finance statistics; government management; IMF staff; inflation expectation; investment needs; ISCR; Kenya; Sub-Saharan Africa.

International Monetary Fund. Kenya: Staff Report for the 2014 Article IV Consultation (October 2, 2014).