Press Release No. 17/23

IMF Executive Board Completes First Review Under the Stand-By Arrangement and Standby Credit Facility Arrangement for Kenya

January 25, 2017

• IMF Board approved completion of first review of Kenya’s economic program supported by the Stand-By Arrangement (SBA) and the Standby Credit Facility (SCF).
• Kenyan authorities indicated that they do not intend to draw on the SBA and SCF arrangements (about US$1.5 billion in total), unless there is a balance of payment emergency caused by external shocks.
• Economy has continued to perform well with robust growth and reduced external imbalances.

On January 25, 2017, the Executive Board of the International Monetary Fund (IMF) completed 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 24-month SBA/SCF with a combined total access of SDR 1.06 billion (about US$1.5 billion) was approved by the IMF’s Executive Board on March 14, 2016 (see Press Release No. 16/110)

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. 

Following the Executive Board discussion on Kenya, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, said:

“Kenya’s economy has continued to perform well. Real GDP growth increased in 2016, 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.

“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.”