The International Monetary Fund (IMF) has approved US$ 110.5 million economic enhancement package for Kenya, buoyed by a rapid economic recovery after a slump in 2011, the financial institution said on Thursday.
The Fund said after surviving an economic stagnation, caused by a weak currency and high interest rates, the East African nation’s growth in 2012 was lifted by new investments in the oil and gas industry.
“Economic activity in Kenya is rebounding after slowing down in 2011/12, helped by improved macroeconomic stability, foreign investment in oil and natural gas exploitation, and favorable weather conditions,” said Naoyuki Shinohara, IMF’s Deputy Managing Director and Acting Chair of Board.
Inflation has declined substantially, net international reserves have increased, public debt is low, and pressures on the exchange rate have disappeared.
Kenya has also made progress in reducing its economic vulnerabilities.
The IMF warns that risks remain due to the global uncertainties and spending pressures associated with the upcoming elections.
“It will be important to maintain policy discipline to build on the accomplishments so far,” the IMF Board cautioned.
The Executive Board announced Thursday it had completed the fourth review of Kenya’s economic program under a three-year arrangement.
The latest cash injection brings the total disbursements under the economic enhancement package to US$ 529.6 million.
Fund officials first endorsed the three-year arrangement for Kenya on 31 January, 2011, for a total amount of US$ 500.4 million.
They said: “Fiscal policy has remained on track. Revenue shortfalls in fiscal year 2011/12, arising mainly from the elimination of the Value Added Tax (VAT) withholding regime, were offset by cuts in non-priority current and capital outlays.”
To boost revenue, the authorities are taking measures to strengthen VAT administration.
The Fund requested the Kenyan Treasury to resist spending pressures in the run-up to the 2013 elections, saying: “The Central Bank of Kenya’s tight monetary policy stance has helped bring inflation down.
“Given low inflation expectations, the Central Bank cut its policy rate recently, and there may be scope for further monetary easing if economic conditions warrant.
“However, the Central Bank should watch for new inflationary pressures that may emerge from higher global food and fuel prices.
“Structural reforms have also moved forward. The recently-approved Public Financial Management Law will help strengthen expenditure management and control, re-orient spending toward priority sectors, and improve fiscal transparency.”
The new VAT law is being debated in parliament.
The Fund officials were also happy about further efforts being made to enhance financial regulation and supervision, deepen financial inter-mediation, and strengthen the regime against money laundering.
They said: “Looking forward, risks to the programme arise from a weakened global financial conditions and rising oil prices, which could derail Kenya’s favorable economic performance.”