In its latest consultation with Kenya, Directors of the Executive Board of the International Monetary Fund (IMF) lauded the Kenyan authorities for maintaining macroeconomic stability, introducing important market-friendly reforms and for a successful debut Eurobond issuance.
The overall theme of the resulting report is that Kenya’s economic outlook is favourable, although it may, like most other African countries, be vulnerable to exogenous shocks. This can be managed, however, with the establishment of stronger buffers and appropriate structural reforms that strengthen the business climate; the upside from this can further drive down poverty rates while promoting inclusive growth.
Credit to the country’s manufacturing sector continues to rise thus triggering investor interest most notably in the extractive industries. Growth of the economy is expected to exceed the current 5 percent in 2015 while inflation remains moderate although this could soon be reversed by rising food prices and credit growth.
Medium-term growth prospects for the economy are favourable and somewhat sustainable given the rising infrastructure investment in energy and transportation, the heightened levels of financial inclusion which continues to improve, and the expansion of the East African Community market which potentially boosts regional integration and trading.
Kenya’s successful Eurobond issue worth $2 billion spiked international reserves and provided for about four and a half months of prospective import coverage. Its Financial Services Sector continues to be a model for other African countries and efforts to fully transform Nairobi into a regional hub are producing results as Kenya is no longer on the watch list of the Financial Action Task Force.
A major challenge facing the country includes climate related shocks, another potential challenge for many African nations. Also, the East African player is experiencing difficulties in implementing the right degree of devolution of government responsibilities, in many ways, this can confound public financial management.
IMF Directors have urged the authorities to commit to fiscal discipline in order to curb the challenges emanating from the ongoing process of devolution. They believe this will create space for more investment in infrastructure and prioritized social spending.
Overall, they encouraged the authorities to maintain the pace of structural reforms and not relent from ongoing efforts to eliminate infrastructure bottlenecks especially because of the threats from climate-related shocks. In light of recent oil and gas related discoveries, they also advocated for the enactment of an effective framework for natural resource management which can also improve international competitiveness.
By Emmanuel Iruobe
