Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE) – The International Monetary Fund (IMF) on Wednesday said Kenya’s strong reform record and economic performance in recent years has laid the ground for sustainable growth that would aid the country’s vision 2030 development targets.
This is coming on the heels of the 2014 Article IV Consultation discussions with the Kenyan authorities.
Mauro Mecagni who led the IMF said Kenya’s economy has continued to grow, with a pick-up in credit to the manufacturing sector and renewed foreign investor interest, notably in the extractive industries.
Mecagni said the country’s inflation remains within the central bank’s target band, reflecting the implementation of sound monetary policy, and has contributed to the stability of the country’s currency.
According to the IMF mission chief, despite good revenue performance, the 2013/14 central government deficit remained unchanged in percent of gross domestic product (GDP) on account of higher wages, security spending and larger transfers to counties.
He affirmed that Kenya’s debt remains sustainable, and gradual fiscal consolidation will help ensure that the country is on track to meet the convergence criteria specified in the East African Monetary Union Protocol.
“Devolution is a major undertaking that holds great promise for the Kenyan population. It provides the opportunity to foster inclusive growth, increase job creation and address inequality. While considerable progress has been made during the first year of devolution–with much-needed investments in health, roads and access to water in specific counties—accountability, compliance with the legal framework and implementation capacity need to be further strengthened to effectively maximize the benefits of devolved resources, improve the provision of public services and mitigate fiscal risks,” Mecagni said.
The IMF mission said the country remains vulnerable to risks such as weather-related shocks and potential volatility in capital flows and advised its authorities to focus on policies that would help strengthen resilience and support sustained growth.
According to the Fund, these policies include maintaining a prudent fiscal stance consistent with the country’s medium-term debt targets while pursuing a shift in the composition of expenditure towards development priorities.
“In that regard, controlling the wage bill at both national and county level and improving the quality and efficiency of public spending will be essential to create fiscal space for well-targeted social programs and increasing infrastructure investment,” the IMF said.
In this regard, the IMF mission advised the Kenyan authorities to invest in irrigation, energy, and transport infrastructure which would help improve competitiveness and unlock the country’s growth potential.
Another focus area the IMF said is to strengthen capacity-building in public financial management which would ensure that the high expectations linked to devolution are met, and underscores the importance of making the Intergovernmental Fiscal Relations Department fully operational.
Others include improvement of liquidity forecasting to support continued prudent monetary policy, which should stand ready to anticipate changes in inflation expectations in taking monetary policy decisions. “Maintaining a strong foreign exchange reserves position with exchange rate flexibility will further help cushion the impact of potential shocks,” the IMF said.
The IMF also advised the country to support the expansion of its banks, with continued efforts in consolidated supervision of systemic groups and cross-border cooperation with regional supervisors in information sharing, joint prudential oversight and resolution procedures.
