IMF’s Clean Bill of Health on Reforms Paves Way for Loans

Business Daily (Nairobi)

George Omondi

26 May 2011

The International Monetary Fund has endorsed ongoing economic reforms, in a move that is set to unlock billions of shillings from the institution and other lenders.

The IMF team, which concluded one week’s mission to Kenya on Tuesday, said the government’s performance under its Extended Credit Facility (ECF) is on track, setting stage for disbursement of more loans.

“Kenya’s performance under the (ECFs) economic reforms programme has been satisfactory,” Mr Domenico Fanizza, head of the IMF mission to Kenya, said even as he called for stronger monetary policy to cushion consumers from volatile commodity prices.

The team has been in Nairobi in the past week to review the programmes agreed on with Government early this year under its Sh40 billion ($500 million) ECF. The first Sh9 billion ($101 million) of the loan has already been released to the Government to correct the balance of payment position and encourage private sector investment.

As one of the conditionalities, the government also undertook to draft a new public finance law consolidating the existing legislations and harmonising them with the new Constitution.

“Kenya’s economic programme is off to a good start. Economic activity rebounded in 2010, driven by strong agricultural production and a dynamic private sector,” said Mr Fanizza

The team, however, recommended the use of stronger monetary policy to curb the runaway inflation and reduce the widening gap between imports and exports. Imports rose to Sh947 billion against exports of Sh400 billion. This gap is expected to widen further in 2011 as oil and food prices rise to new records.

A sound monetary policy, the team noted, would control demand pressures that have eroded the value of Shilling in recent months without compromising the country’s strong macroeconomic indicators.

“Moving forward, key priorities will be to curb inflation and strengthen the country’s external position in response to the widening current account deficit,” said Mr Fanizza.

The current account deficit (difference in value of imports and exports of goods and services) has been a matter of concern as volatile international commodity prices push the prices of basic items beyond the reach of most consumers. The officials also called for fiscal discipline as the country goes through the transition envisaged under the new Constitution.

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