Published On: Fri, Oct 3rd, 2014

Surge in investments to boost Kenya’s growth: IMF

The International Monetary Fund (IMF) said rising investments are set to spur Kenya’s economic growth as the east African nation is poised to reap rewards of prudent macroeconomic policies and institutional reforms.

The IMF says in its latest report on Kenya’s economy published on Friday that Nairobi is taking steps to adapt its policies to middle income country-type challenges, noting the country’s market- friendly business environment.

“Promising commercial prospects of oil discoveries could potentially provide significant foreign exchange and fiscal resources,” the Bretton Wood institution said in the report.

Economic activity, the report notes, will be propelled by a surge in public investment in infrastructure, renewed interest of foreign investors, and lower transaction costs thanks to information technology.

Kenya has been able to raise funds for large infrastructure projects as a result of the reforms. The country’s credit ratings have also improved largely due to these reforms.

Nairobi was also able to reform the management of its monetary policy, financial sector management and create the fiscal space to implement huge infrastructure projects.

These projects include new airport terminals and new roads and standard gauge railway project is set to begin next month.

The IMF report projected higher growth in the Kenyan economy for a third straight year, at 5.8 percent in 2014/15 after an estimated 5 percent in 2013/14.

According to IMF, inflation remains moderate, but warned that rising food prices and rapid credit growth may fuel inflation expectations.

On Kenya’s natural resource wealth, the report cites commercial estimates that put the country’s oil and gas reserves at levels similar to those of Equatorial Guinea and the Republic of Congo which are sub-Saharan Africa’s largest oil producers.

“If these reserves are confirmed, they could bring Kenya’s external current account to surplus soon after exploitation starts, ” the IMF said.

Kenya has recently received better than expected ratings from the World Bank’s annual country Policy and Institutions Assessment Programme, which put the East African nation at the top of the list amongst Africa’s institutional reformers.

The East African nation’s recent economic performance has been driven, in part, by reforms implemented as part of the country’s three-year, 700 million U.S. dollar program under the Extended Credit facility.

Under the reform effort, the Kenyan authorities have adopted several policies, including decentralizing government institutions in line with the 2010 Constitution.

Kenya also plans to reform the legal and regulatory framework for natural resources to enable prudent management of oil and gas resources.

The report however, notes that manufacturing, transport, and communications were the main supports of growth in early 2014, while the agricultural sector was relatively subdued due mainly to poor rains.

In addition, it says security concerns following terrorist attacks and threats hit the tourism industry which is one of the leading foreign exchange earners.

The report says improved business conditions arising from the removal of bottlenecks by increased infrastructure investment in energy and transportation is one of the mainly drivers of the economic growth.

It also says the expansion of the East Africa Community (EAC) market thanks to decisive steps toward regional integration with neighboring Burundi, Rwanda, Tanzania, and Uganda also contributed to the growth.

The IMF says a boost in investor confidence following the successful Eurobond issuance could further improve Kenya’s outlook.

“Accelerated regional integration, improved security conditions, and possible new discoveries of oil, gas, and other minerals could have a large impact on investor sentiment,” said the IMF.

It says the low-cost technology of mobile banking has helped reduce overall transaction costs and has particularly benefited the poorest section of the population.

“The M-Pesa network of money transfers by mobile phone has particularly boosted financial access,” the report finds.

The IMF says reduced transaction costs, higher financial access, and continuous innovation of the mobile payment platform have a positive impact on social welfare.


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