IMF forecasts Kenya's economy to grow by 2.7% in 2009

20:21, October 30, 2009      

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The International Monetary Fund (IMF) has forecast Kenya's economy to improve gradually, saying it will grow by 2.7 percent this year.

A statement issued in Nairobi following the conclusion of a two-week visit to the East African nation said the economic performance is expected to improve gradually to four percent in 2010 and then growth rates would gradually increase to 6.5 percent over the medium term.

"Economic performance is expected to improve gradually, but as risks remains, therefore policies should aim at addressing emerging challenges and promoting sustainable high growth," the IMF said in a statement received here Friday.

"In light of the risks facing the economy, macroeconomic management should remain geared towards achieving the inflation objective and promoting fiscal sustainability," it said.

Senior adviser in the IMF's African department Michel Atingi-Ego said Kenya has the necessary space to ease fiscal policy and help sustain domestic demand in the face of slowing economic growth thanks to prudent economic policies that helped reduce public debt as a share of gross domestic product.

Atingi-Ego said stepping up reforms will be important to promote value for money in public finance, enhance the competitiveness of the economy, and attract investment needed to diversify the economy and reduce its vulnerability to adverse shocks.

"The team and the authorities look forward to continuing a constructive dialogue on the economic challenges facing Kenya," he said.

Upon its return to Washington, the team will prepare the necessary documentation for presentation to the IMF’s Executive Board for a discussion tentatively scheduled for early December.

"The staff team thanks the Kenyan authorities for their close collaboration and the useful exchange of views during its stay in Nairobi," Atingi-Ego said.

The East African nation's biggest economy had been on a recovery path since 2003, after a slump in the 1990s and 2000s. The revival was abruptly halted in 2008 due to a post-election crisis.

The Kenya National Bureau of Statistics estimates that the economy grew by 2.1 percent in the second quarter of 2009 which is attributed to the adverse impact of drought, power rationing and high inflation.

However, experts concur that the local economy is resilient having withstood the shocks of post election violence, drought and global recession.

According to global fund management company, AIG, Kenya's economy will grow by between 1.5 and 2.0 percent this year, and increase to 4.0 percent in 2010 on account of stimulus spending by the government.

The fund manager says enhanced credit extension by banks, a recovery of the agricultural sector and easing of the inflation will fuel the country's economic growth.

Senior Investment Manager Edward Gitahi told Xinhua last week that the positive growth for 2009 further reflects the resilience of the economy that has weather the severe shocks of the post-election crisis, adverse weather and the effects of the global financial meltdown that happened in the latter part of 2008.

"The economy is on the economic recovery and this will expand to 4.0 by 2010 and recovery fully by 2011. By then we expect agricultural and manufacturing sectors to play key roles in the economy," Gitahi told Xinhua in Nairobi.

IMF said enacting several pieces of legislation that are still pending - including the banking, new deposit insurance and anti-money laundering bills - will further strengthen the functioning of the financial sector.

Atingi-Ego said Kenya was facing the challenge of adjusting to a series of shocks that have affected its economy since 2008.

Shortly after it started to recover in the aftermath of the post-election violence, he said, the economy was buffeted by rising world energy and fertilizer prices, a drought, the global economic recession, and more recently, another drought.

"The global economic crisis curtailed export growth, tourism receipts, remittances, and private capital flows. Against this background, economic growth slowed from 7.1 percent in 2007 to 1.7 percent in 2008, and is projected at 2.7 percent, in 2009," he said.

"Fiscal and external current account deficits widened. The exchange rate depreciated late in 2008, along with many currencies world-wide, but has since stabilized."

Atingi-Ego said the authorities' policy response to the crisis was appropriate thanks to prudent economic policies that helped reduce public debt as a share of GDP.

He said Kenya had the necessary space to ease fiscal policy and help sustain domestic demand in the face of slowing economic growth.

According to Atingi-Ego, the CBK adhered to its monetary target, and given the weakening demand for private sector credit, short-term interest rates declined, contributing to an easing of budgetary pressures on domestic debt service.

CBK's international reserves which accumulated over a long period were used to partly finance the widening current account deficit in the face of mounting depreciation pressures on the exchange rate.

Also, strengthened banking supervision helped ensure that the banking sector was well capitalized and liquid, and had adequately provisioned for non-performing loans, he said.

"In the meantime, the IMF provided financial assistance to Kenya to help mitigate the adverse effects of the drought and the global financial crisis and rebuild foreign reserves," Atingi-Ego said.

In June 2009, in response to the authorities' request for financial assistance, the Fund provided about 200 million US dollars under the rapid access component of the Exogenous Shock Facility (ESF).

Later in the year, Kenya received about 350 million dollars through the general and special allocations of Special Drawing Rights (SDRs) to all IMF members.

During its visit to Nairobi, the IMF mission held discussions with senior government officials focusing on recent developments, policies to adjust to adverse shocks, and other structural policies to promote a pro-growth environment.

Source: Xinhua
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