The Executive Board of the International Monetary Fund (IMF) today completed the first review of Kenya’s performance under the program supported by the Stand-By Arrangement (SBA) and an Arrangement under the Standby Credit Facility (SCF). The 12-month SBA/SCF with a combined total access of SDR 488.52 million (about US$687 million) was approved by the IMF’s Executive Board on February 2, 2015.
The authorities intend to continue treating both arrangements as precautionary. The Executive Board’s decision makes available an additional SDR 54.28 million, bringing the cumulative amount available under the arrangements to SDR 434.24 million (about US$610.7 million) for the Kenyan authorities to draw on in the event that exogenous shocks lead to an actual balance of payments need.
In completing the review, the Executive Board approved the authorities’ request for the waivers of the non-observance of the continuous performance criterion on external arrears and the modification of performance criteria for end-September 2015.
Following the Executive Board discussion on Kenya, Mr. Min Zhu, Deputy Managing Director and Acting Chair, said:
“Kenya’s economic performance has remained satisfactory despite headwinds from rising volatility in global markets and domestic security challenges. Real GDP growth has been robust, and, notwithstanding the recent shilling depreciation, inflation has remained within the authorities’ target range. External buffers to date have remained adequate.
“The authorities’ fiscal program for 2015/16 seeks to address persistent security challenges and infrastructure bottlenecks while preserving macroeconomic stability. The authorities’ commitments to contain current spending and mobilize additional revenue are welcome and should contribute to mitigating excess demand pressures. Over the medium term, continued efforts are needed to boost fiscal space to accommodate development priorities and an orderly process for devolving fiscal responsibility to lower tiers of government while maintaining public debt sustainability.
“Public financial management reforms—in particular, strengthening capacity at the National Treasury’s Debt Management Office and the introduction of the Treasury Single Account—should be decisively implemented. The authorities have taken a number of steps to strengthen expenditure control and improve the efficiency of public spending. However, counties’ access to the Central Bank of Kenya’s (CBK) overdraft facility could complicate monetary policy implementation.
“Recent decisive steps by the central bank to tighten monetary policy are appropriate. These steps will help contain the impact of the recent shilling depreciation on domestic prices and anchor inflationary expectations. The central bank remains committed to refraining from intervening in the foreign exchange market except for smoothing excessive exchange rate volatility.
“The authorities’ commitment to improve the central bank’s stress testing framework is important to address potential risks associated with balance-sheet effects of the recent currency depreciation. Efforts to strengthen supervision of banking groups operating outside Kenya are also welcome in light of the rapid expansion of Kenyan banks abroad. The recent exchange rate volatility puts a premium on monitoring corporate borrowing from abroad.”