14 December 2013

Kenya: IMF Says Kenya Has Met Set Economic Reforms

INTERNATIONAL Monetary Fund has endorsed reforms under US$760.6 million (Sh65.92 billion) Extended Credit Facility programme signed on December 9, 2011.

The 2011-14 facility, first approved in January 2011 before being upgraded by $250 million(Sh21.66 billion) later in December, was conditioned on the government initiating economic reforms to stabilise macroeconomic environment against domestic and external shocks. The deadline for kick-starting the reforms was end of last financial year in June.

Treasury secretary Henry Rotich and Central Bank governor Njuguna Ndung'u jointly wrote to the Fund on November 15 outlining policy changes undertaken.

The Bretton Woods institution said net domestic account and net foreign assets were "comfortably within the programme bounds". "All end-June 2013 quantitative targets were met," it said in a statement on its website on Wednesday, announcing completion of its reviews under the ECF.

It said the country's primary fiscal balance outcome and priority social expenditure were also in line with the programme's indicative target.

Reforms of the value added tax regime including enforcement of the standard 16 per cent levy on September 2 to increase revenue mobilisation to reduce fiscal imbalances was part of the reforms.

There was also VAT audits on 50 large taxpayers to restore their compliance with VAT after withholding requirements were phased out. The Public Finance Management Act 2012 was also passed under the conditions for the facility to increase spending efficiency and improve fiscal management. The CBK further adopted a single treasury account to strengthen cash management and improve expenditure controls.

The banking industry regulator said it also reinforced its supervisory oversight to reduce risk of macroeconomic stability through an amendment to the Banking Act.

Deepening of the capital markets by enhancing stability and attracting capital inflows through demutualisation of the Nairobi Securities Exchange to reduce balance of payments was also under the IMF conditions. The demutualisation however appears to have stalled after a bitter fall-out between the Capital Markets Authority and 22 brokerage firms that own the exchange through guarantees. The two have not agreed on shareholding structure with Treasury and CMA holding out for a 20 per cent shareholding while brokers maintain they can only surrender a 12 per cent stake.

The IMF cited a sustainable fiscal policy focusing on increased infrastructure investment,promising commercial prospects for oil discoveries, increasing foreign investments into stock market,among others, for its approval. The Fund noted International Criminal Court's trial of President Kenyatta has been postponed to February 5, 2014 while only the tourism sector has been affected by the deadly terrorist attack on Westgate mall on September 21.

"Kenya's recent reforms have introduced a more comprehensive system of checks and balances, including accountability and transparency in expenditure control and management," the IMF said. "The new government has taken decisive steps towards devolution supported by a renovated institutional framework and solid  macroeconomic management."

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