IMF Uncertain if Kenya’s Access to USD 1.5Bn Will Be Extended

The International Monetary Fund (IMF) was in Kenya to carry out a review of the 1.5 billion dollars stand-by credit and precautionary facility.

According to IMF, their mission to assess the Kenyan economy achieved significant progress, but it remains uncertain if Kenya’s access to the standby facility will be extended as talks with the government are set to continue in the coming week.

From the IMF’s report, Kenya’s economy had continued to perform well with the GDP has expanded by 5.7 percent in Q1’2018, up from 4.9 percent growth experienced in Q1’2017.

The growth in Kenya’s economic growth is being driven by strengthened investor confidence following the conclusion of the prolonged electioneering period, improved weather conditions in 2018 with the country having experienced a drought in 2017 and a recovery in tourism,

The number of tourists arriving in Kenya has increased by 2.1 percent to 76,608 in June 2018 from 75,028 in May 2018, despite a 4.4 percent decline y/y from 80,121 in June 2017, as per data from Kenya National Bureau of Statistics (KNBS).

Inflation has remained within the 2.5 – 7.5 percent government-set target since July 2017. Analysts expect inflation to remain within the target in 2018 despite the expectations of upward pressure in H2’2018, partly due to the base effect, and the expected rise in fuel and transport prices with the introduction of 16.0 percent VAT on petroleum products as from September 2018 and other tax reforms proposed under the Finance Bill 2018.

Kenya had managed to meet the IMF’s program fiscal target for the FY2017/2018, with the budget deficit for the 2017/2018 fiscal year coming in at 614.6 billion shillings (equivalent to 7.0 percent of GDP), which is a significant narrowing from 9.0 percent of GDP previously.

The current account deficit has started to adjust in 2018 after widening to 6.7 percent of GDP in 2017 from 5.2 percent in 2016, which was mainly driven by higher food imports and weaker agricultural exports due to the drought experienced during the year, coupled with higher fuel imports owing to rising global oil prices.

The lower current account deficit so far in 2018, which narrowed to 5.8 percent in the 12 months to June 2018 from 6.3 percent in March 2018, has been attributed to improved agriculture exports, and lower capital goods imports following the completion of Phase I of the SGR project.

The Kenyan Shilling has remained resilient against major currencies, while foreign exchange reserves have been relatively high currently standing at about USD 8.7 billion (equal to 5.8-months of projected imports for 2018).