by pna
The
International Monetary Fund (IMF) has approved 1
10.5 million U.S. dollars loan facility for
Kenya as the East African nation moves to tighten its monetary policy to bring inflation further down.
The latest approval brings total disbursements under the arrangement to an amount equivalent to 529.6 million dollars since the first disbursement in January.
IMF Deputy
MD Naoyuki Shinohara said the economic activity in Kenya is rebounding after slowing down in 2011/12, helped by improved macroeconomic stability, foreign investment in oil and natural gas exploitation, and favorable weather conditions.
"Inflation has declined substantially, net international reserves have increased, public debt is low, and pressures on the exchange rate have dissipated," Shinohara said in a statement issued in Nairobi on Thursday.
The East African nation's economy has undergone turbulent times in the recent past, but the recent IMF assessment said policies used by the government have so far prevented adverse effects and there are signs that even inflation that averaged 19 percent in November last year is coming down.
The economy has also experienced strain from drought that led to higher food prices and import of food as well as high oil price.
These economic shocks are for example attributed to the volatility of the shilling in the third and fourth quarter of 2011 that saw the shilling lose 28 percent of its value against the dollar in just three months.
The IMF said Kenya has also made progress in reducing its economic vulnerabilities despite downside risks which however remain because of global uncertainties and spending pressures associated with the upcoming elections.
The Bretton Wood institution called on the East African nation to maintain policy discipline to build on the accomplishments so far.
The IMF board approved a 3-year Extended Credit Facility (ECF) arrangement for Kenya on Jan. 31, 2011 for a total amount equivalent to 500.4 million dollars, or 120 percent of quota.
The arrangement was augmented on Dec. 9, 2011 for a total amount equivalent to 750.6 million dollars, or 180 percent of quota.
Shinohara said fiscal policy has remained on track, adding that revenue shortfalls in fiscal year 2011/12, arising mainly from the elimination of the VAT withholding regime, were offset by cuts in non-priority current and capital outlays.
"To boost revenue, the authorities are taking measures to strengthen VAT administration. It will be important to resist spending pressures in the run-up to the forthcoming elections," he said.
The IMF said the Central Bank of Kenya's tight monetary policy stance has helped bring inflation down. Given low inflation expectations, the Central Bank cut its policy rate recently, and there may be scope for further monetary easing if economic conditions warrant.
However, he called on the Central Bank to watch for new inflationary pressures that may emerge from higher global food and fuel prices.
"Structural reforms have also moved forward. The recently- approved Public Financial Management Law will help strengthen expenditure management and control, re-orient spending toward priority sectors, and improve fiscal transparency," Shinohara said.
He said the new VAT law is being debated in the National Assembly, noting that financial soundness indicators are healthy.
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