By Modupe Gbadeyanka
The Executive Board of the International Monetary Fund (IMF) has disclosed that Kenya’s real Gross Domestic Product (GDP) growth increased in 2016.
The IMF made this disclosure after the completion of the first review of Kenya’s performance under the program supported by the Stand-By Arrangement (SBA) and an Arrangement under the Standby Credit Facility (SCF).
The global financial institution said the Kenyan authorities have indicated that they will continue to treat both arrangements as precautionary, and do not intend to draw on the SBA and SCF arrangements unless exogenous shocks lead to an actual balance of payments need.
Speaking on outcome of the review, Deputy Managing Director of the IMF, Mr Tao Zhang, pointed out that Kenya’s economy has continued to perform well and that inflation remains within the target range, and the current account deficit has narrowed.
“The macroeconomic outlook is overall positive, including robust growth and reduced external imbalances. However, interest rate controls are likely to reduce access to credit, weighing on growth.
“They also complicate monetary policy and adversely affect banking sector profitability, especially for small banks.
“Although the adverse effects of the controls are manageable in the near term, if maintained, they could potentially pose a risk to financial stability. Therefore, it is essential to remove these controls, while taking steps to prevent predatory lending and increase competition and transparency of the banking sector,” Mr Zhang said.
He added that, “The envisaged fiscal consolidation that targets a 3.7 percent of GDP deficit by 2018/19 is critical to maintain a low risk of debt distress while preserving fiscal space for development priorities.
“Continued public financial management reforms, aimed at upgrading the efficiency of public spending and expenditure control, are key to strengthening fiscal policies and institutions.
“Establishing a formal interest rate corridor remains a priority for strengthening the monetary policy framework.
“While adoption of such a corridor has been delayed given the uncertainties created by interest rate controls, it will be important to conduct liquidity operations to realign interbank rates to the policy rate as economic conditions permit.
“The authorities are taking actions to strengthen financial stability and to enforce reporting requirements. These include steps to implement the action plan on banking regulation and supervision to enhance capacity to monitor credit and liquidity risks and limit insider lending.
“Continued improvements in macroeconomic statistics and acceleration of governance reforms will be essential to reinforcing efficiency, transparency, and accountability.”
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