18 April 2013

Kenya: IMF Calls for Scrutiny of Kenyan Banks' Health

THE International Monetary Fund has called for close monitoring of Kenyan banks to ensure that their regional expansion plans do no compromise their soundness.

In its latest review of the country's economic situation, IMF said though the risks from global financial and economic conditions have lessened and financial indicators have remained favourable, there is need to be more cautious.

"Nevertheless, policies should focus on closely monitoring the health of the banking system and adapting banking supervision to growing regionalisation, " IMF said in a statement.

IMF has also advised that though there is scope for further monetary easing by the Central Bank due to low inflation, the banking sector regulator will need to remain vigilant to the risks of possible adverse shocks or a reversal of capital flows.

The fund said fiscal consolidation should continue by lowering non-priority expenditures and boosting revenue mobilisation through improvements in tax administration, the introduction of a new value-added tax law and a financial transaction tax.

IMF however lauded the authorities for instituting adequate measures to reform the economy. As a result, inflationary pressures have been tamed with economic growth keeping a good pace despite the slowdown of exports to and tourism from Europe.

"International reserves are on the rise and the deficit of the external current account has shrunk significantly," the statement, which announced the release of Sh9 billion to Kenya said. "The authorities have also made good progress with their structural reform efforts in the areas of public financial management and tax reform."

IMF also notes that the public debt-to-gross domestic product ratio has declined, despite the large budgetary costs of implementing the new constitution, preparing for the March elections, and the recent wage increases in the civil service.

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