NAIROBI, KENYA – The International Monetary Fund (IMF) has rewarded Kenya with $108 million for keeping up reforms in spite of difficult economic conditions.
However it also wanted closer monitoring of the financial institutions as several Kenya banks become regional. The Executive Board’s decision to give the money follows completion of the 5th review under a three-year arrangement of the Extended Credit Facility for Kenya.
An IMF Mission was in Nairobi in February as part of monitoring process and their report ws the foundation of the Executive Board’s approval. The Executive Board (the Board) is responsible for conducting the day-to-day business of the IMF. It is composed of 24 Directors, who are appointed or elected. According to a public statement the IMF announced that Kenya has stayed the course in its economic reforms, with good results. The completion of the review enables the disbursement of an amount equivalent to SDR 71.921 million (about $108.5 million), which will bring total disbursements under the arrangement to SDR 416.6 million (about $628.2 million). ‘Inflationary pressures have been tamed. Economic growth has kept a good pace despite the slowdown of exports to and tourism from Europe. International reserves are on the rise and the deficit of the external current account has shrunk significantly—excluding capital-goods imports that have surged because of oil exploration. The public debt-to-gross domestic product ratio has declined, despite the large budgetary costs of implementing the new constitution, preparing for the March elections, and the recent wage increases in the civil service’, the statement reads in part. The IMF believes that stronger growth is expected in 2013 supported by good weather conditions. With firmer expectations of low inflation, there is scope for further monetary easing, although the Central Bank of Kenya will need to remain vigilant to the risks of possible adverse shocks or a reversal of capital flows.
Fiscal consolidation should continue by lowering non-priority expenditures and boosting revenue mobilization through improvements in tax administration, the introduction of a new value-added tax law and a financial transaction tax. Financial soundness indicators have remained favorable. Nevertheless, policies should focus on closely monitoring the health of the banking system and adapting banking supervision to growing regionalization, while the government seeks to complete the demutualization of the Nairobi Stock Exchange. Looking forward, the risks from global financial and economic conditions have lessened. In addition, the prospects for commercially-viable oil discoveries could further improve the medium- to long-term outlook, which will require policies to promote diversified and balanced growth to avoid excessive reliance on natural resources.
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