NAIROBI: IMF LENDS KENYA 40 BILLION

The International Monetary Fund logo,IMF has granted Kenya a three year 40 Billion shillings loan.

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under the Extended Credit Facility for Kenya in an amount equivalent to 40 Billion Kenya Shillings (about US$508.7 million). The program is aimed at protecting Kenya’s external position, while allowing a gradual fiscal adjustment. The Executive Board’s approval will immediately enable an initial disbursement of an amount equivalent to SDR 65.1 million (about US$101.7 million).
The program is designed to help rebuild Kenya’s international reserves, by supporting the conditions for sustainable growth while preserving macroeconomic stability. It will help address balance-of-payments financing needs and provide a reserve cushion to help the country deal with adverse shocks.
Following the Executive Board’s discussion on Kenya, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, stated
Kenya’s economy is bouncing back from the slowdown that accompanied the global financial crisis. Fiscal stimulus has boosted the recovery, especially in construction, and benign weather conditions have supported a rebound in agriculture. The ratification of the new constitution by the August 2010 referendum has spurred confidence as it provides an opportunity to address long-standing social and institutional problems and implement additional reforms, including on fiscal decentralization, the public expenditure framework, and land ownership.
"Sustaining high growth will require addressing remaining macroeconomic vulnerabilities. The ongoing recovery will further weaken Kenya’s external position and the rise in public debt resulting from the fiscal expansion should be reversed. However, fiscal consolidation needs to accommodate the costs of implementing the new constitution as well as high-priority public investments
"The authorities’ program under the three-year ECF arrangement aims at boosting international reserves and strengthening the fiscal position. The arrangement provides a reserves cushion to reduce vulnerabilities to external shocks, including a projected deterioration of the terms of trade in the next two years. The program will help maintain fiscal discipline as fiscal decentralization gets underway, while keeping inflation low in the context of Kenya’s floating exchange rate regime.
"The program targets a gradual reduction in the central government primary balance through tax reform and strict control of current spending. Tax measures include the reform of the value-added and income taxes to improve coverage and compliance. A successful implementation of constitutional provisions will also address governance issues, by strengthening the judiciary and overhauling the public expenditure management framework. The program will create the fiscal space necessary to implement the constitution, raise infrastructure investment, and protect spending aimed at poverty reduction," said Mr. Lipsky

Kelvin Mwangi,
Nairobi.