The International Monetary Fund (IMF) has said that Kenya’s economy continues to perform well, and there is broad agreement on plans for growth-enhancing fiscal consolidation.
“Kenya’s economy continues to perform well,” despite marginal growth in fiscal deficit to 7.7 percent in the last financial year with the government targeting to reduce the budget deficit to 6.3 percent in the current financial year said the high-level team from the IMF after concluding its two week-visit to Kenya.
The IMF team led by Benedict Clements, the Fund’s Divisional Chief for the Fiscal Policy and Surveillance visited Kenya from February 19-March 3, 2020, to conduct the Article IV consultation discussions with the authorities and undertake negotiations on a new precautionary three-year Stand-By Arrangement/Stand-By Credit Facility.
According to the team, “Significant progress was made during the visit”.
“There is broad agreement on the main principles of a plan for growth-enhancing fiscal consolidation that would cut waste and boost revenues to enable priority spending while reducing the deficit to below 4 percent of GDP by FY2022/23 as targeted in the authorities’ draft Budget Policy Statement. Technical work will continue to firm up underpinnings of the plan, which could be supported by a Fund arrangement.”
Focus on Fiscal Consolidation Will Cut Kenya Expenses to Below 23% of the GDP
According to the IMF, the external current account deficit narrowed further to 4.6 percent of GDP from 5.0 percent in 2018, mainly due to lower imports of capital goods and petroleum products, which more than offset a decline in goods exports (e.g., in tea and coffee).
Remittances remained strong. External buffers are healthy, with foreign exchange reserves increasing to US$9.1 billion (5.4 months of imports) at end-2019.
“The banking sector remains well-capitalized and liquid. The system’s core and total regulatory capital to risk-weighted assets stood at 16.8 and 18.8 percent, respectively, as of December 2019. Liquidity risk has eased with improved distribution of liquidity across all banks. Lending to the private sector started to gain momentum in 2019, reaching 7.3 percent year-on-year in January 2020,” IMF said in a statement at the conclusion of a staff visit to Kenya.
“Significant progress was made during the visit, and discussions will continue in the coming period. There is broad agreement on the main principles of a plan for growth-enhancing fiscal consolidation that would cut waste and boost revenues to enable priority spending while reducing the deficit to below 4 percent of GDP by FY2022/23 as targeted in the authorities’ draft Budget Policy Statement,” added the IMF.
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“Technical work will continue to firm up underpinnings of the plan, which could be supported by a Fund arrangement,” noted the statement.
During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.
