Press Release No. 04/270

Corrected Press Release: IMF Executive Board Completes First Review Under Kenya's PRGF Arrangement and Approves US$76.9 Million Disbursement

December 20, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Kenya's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement, which was approved on November 21, 2003 (see Press Release No. 03/201). The Board also approved waivers for the nonobservance of continuous and structural performance criteria.

The Executive Board approved augmented access under the PRGF arrangement by SDR 50 million (about US$ 76.9 million), which will bring the total amount drawn under the arrangement to about SDR 75 million (about US$115.4 million).

Following the Executive Board discussion, Mr. Rodrigo de Rato, Managing Director and Chair, said:

"Progress has been made in implementing policy reforms under the three-year program supported by the Fund. A rebound in economic growth has begun, the recent sharp increase in domestic debt has been arrested, and implementation of key structural reforms is underway. In addition, the authorities have begun to address capacity constraints and to strengthen key policy implementing institutions.

"The main challenge is to accelerate broad-based growth to help reduce poverty and improve the delivery of essential social services, while also securing fiscal consolidation and low inflation. In the near term this will require prudent fiscal management and firm control over monetary aggregates to bring down inflation. Over the medium term, tight fiscal policy will need to be supported by a broadening and acceleration of structural reforms to enhance economic efficiency, expand the role of the private sector in the economy, and promote increased donor support.

"Consistent with these objectives, the authorities' program for 2004/05 emphasizes policies to bring down inflation and strengthen budget management. It focuses on measures that aim at improving the efficiency of public expenditure and increasing revenue collection. The program also envisages significant advances in the governance and anti-corruption area, where some progress has been made, but much remains to be done. To strengthen Kenya's external competitiveness, a multifaceted strategy is being implemented that includes streamlining the regulatory framework, reforming the wage-setting system and liberalizing trade. Moreover, a strengthening of the financial system is envisaged through a variety of reforms, including actions to address the problems of distressed state-owned banks, reduce the large number of nonperforming loans, and promote privatization.

"The government's reform program is well tailored to meet the pressing economic challenges facing Kenya. Strengthened implementation of the reform agenda, particularly in the area of governance, is essential for achieving enhanced donor support, sustainable growth, and poverty reduction," Mr. de Rato said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payment.