IMF Set To Visit Kenya To Asses Treasury

The International Monetary Fund (IMF) will be visiting Kenya later this month to assess whether the Treasury is complying with commitments made under the 150 billion-shilling precautionary financing facility arranged in March this year.

One of the conditions for the government from the IMF was to narrow its budget deficit to below 6.5 percent of GDP in the current fiscal year and to 5.0 percent in 2017/2018 fiscal year.

However, Kenya projects its funding gap widening to 9.3 percent of GDP in the year to June 2017 from 7.9 percent in 2015/2016 fiscal year.

The Treasury intends to spend 2.3 trillion during this fiscal year, 11.2 percent more than it did last year. The Treasury plans to borrow 229.6 billion shillings locally and another 401.7 billion shillings externally to plug in the shortfall.

Given the increased expenditure on infrastructure projects and the need to regain power in upcoming elections, chances of the government cutting back spending are slim. According to Cytonn Investments Report , the differences between the government and the IMF on budget cuts may make it more difficult for Kenya to access the facility if need be and also might be difficult for Kenya to access funds from the global markets, and if they do it will be at very high rates like it happened in Ghana where they borrowed at 9.25 percent.

The IMF this week in its review on the economic outlook for sub-Saharan Africa, has projected the growth rate in the region to weaken after a year of solid growth. IMF forecasts the growth among the 45 countries that make up this region to drop to its lowest level in more than two decades with a drop of over 50 percent to 1.4 percent this year from 3.5 percent in 2015.

The decline in growth is attributed to;

• Declining oil prices which has affected key commodity exporting economies, such as Nigeria,
• Terrorism and humanitarian crimes,
• Critical drought particularly in Lesotho, Malawi and Zambia.

These elements have contributed to a slowdown in flow of foreign direct investments into the region as well as creating uncertainties among investors who have flown to safety.

Among the worst hit economies are; Nigeria, Cameroon, Angola and Chad. However, some economies in the sub-Saharan Africa region have continued to experience strong growth, such as Ethiopia, Senegal, Tanzania and Cote d’Ivoire. This forecast by IMF comes at a time when the World Bank also predicts a drop in growth in Sub Saharan Africa to 1.6 percent in 2016 from 3.5 percent in 2015. Of key note is that despite the challenges experienced by commodity dependent countries in the SSA region, the East Africa economies continue to record strong GDP growth with Kenya recording 6.2 percent growth in Q2’2016 and we project Kenya’s GDP growth for 2016 to come in at 6.0 percent.