“Discussions focused on macroeconomic policies and reforms aiming at ensuring the sustainability of investment-driven, inclusive growth. Kenya’s medium-term outlook remains favorable, but headwinds from weak credit growth will weigh on economic activity in the near term. With elections over and weather conditions returning towards normal, growth is expected to increase to 5½ percent in 2018. Annual growth could rise further to 6½ percent within a couple of years, provided that the authorities continue economic reforms, including reducing the fiscal deficit and amending interest rate controls.
“Elevated fiscal deficits in recent years have raised public debt vulnerabilities. The authorities expressed their commitment to significant fiscal adjustments in the coming years that would help address these vulnerabilities and maintain public debt on a sustainable path . To that end, the IMF team and the authorities agreed that a reduction in the fiscal deficit to 7.2 percent of GDP in 2017/18 and further to 5.7 percent of GDP in 2018/19, from 8.8 percent in 2016/17 would be appropriate. This will be achieved by a combination of revenue measures and contained spending.
“The mission welcomed the authorities' plans to accelerate reforms aimed at (i) increasing the efficiency and transparency of public spending, particularly on development spending; and (ii) safeguarding financial stability by strengthening capital and liquidity positions of banks and microfinance institutions, promptly addressing the capital and liquidity deficiencies in individual banks, and implementing new International Financial Reporting Standards (IFRS).