IMF mission gives thumbs-up to Kenya’s economic reforms

By JAMES ANYANZWA

The International Monetary Fund (IMF) has given the thumbs up to Kenya’s economic reforms over the last three years, but cautioned against complacency.

The assessment of Kenya’s economic reforms is part of IMF’s sixth and final programme review under the three-year Extended Credit Facility (ECF) arrangement approved in January 2011.

Upon approval by the IMF board next month the last tranche of the loan of about $110 million (Sh9.2b) would become available, bringing total disbursements under the arrangement to about $750 million (Sh63b).

 In a statement IMF ‘s head of mission to Kenya Mr Domenico Fanizza noted that Kenya has made huge strides in its economic reform agenda, which have seen international reserves rise to more than $6 billion  (Sh504b).

Fanizza observed that budgetary discipline has helped ensure fiscal and external sustainability while still providing sufficient resources to implement the new Constitution and start fiscal devolution.  He pointed out that Central Bank’s control over interest rates has succeeded in bringing inflation down and cementing expectations of low and stable prices. Fanizza noted that Kenya’s economic reforms over the last three-years have paid off.

Stagnating demand

“The economy has proved resilient in the face of exogenous shocks such as the 2011 drought, and stagnating demand in traditional export and tourism markets as a result of the global financial crisis,” he stated. Fanizza said that the reforms have set the stage for stronger, more inclusive and lasting economic growth.

According to IMF, Kenya’s economic growth has remained robust and is on an upward trend, supported by strong domestic demand.  It noted that structural reforms have made progress to prepare for the devolution process, notably through a strengthened regulatory environment for public financial management at both national and county level.

Fanizza also lauded the recently enacted new Value Added Tax (VAT) law, saying the legislation would increase administrative efficiency, bolster revenue collection, and create resources for priority social and development outlays.

Financial inclusion

Another area of interest to the Bretton Woods institution is the growing financial inclusion.

IMF noted that financial inclusion offers the hope of job-creating opportunities for millions of previously excluded Kenyans and, combined with the decline in interest rates, should provide support to economic activity in the period ahead.

According to the IMF, investor interest in the Kenyan economy has gained momentum, translating into strong performance on the stock market and establishment of regional operations by foreign corporations and various financial institutions.

Fanizza, however, noted that challenges still persist which requires redoubling of efforts towards anchoring economic stability through sound fiscal and monetary policies. 

The IMF, however, expects the Central Bank to aim at anchoring expectations of low inflation.