“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). The increase in the current account deficit was mainly driven by higher food imports and weaker agricultural exports—due to the drought—and higher fuel imports, with the latter owing to rising global oil prices. The lower current account deficit so far in 2018 is due to strong agriculture exports, rising transfer inflows, and lower capital goods imports following the completion of the Mombasa-Nairobi phase of the SGR project. Reflecting these favorable external developments, the exchange rate has remained stable and foreign exchange reserves currently stand at about US$8.8 billion (equal to 5.1 months of projected imports for 2018) as of end-July 2018.

“The banking sector in aggregate remains well-capitalized and liquid. However, the banking system’s non-performing loans remains high at 12 percent in June 2018, though declining in recent months. Higher non-performing loans have been driven by weaker economic activity in 2017, and delayed payments from the government and private sector.

“Discussions focused on (i) fiscal policies to achieve the authorities’ fiscal deficit target of 5.7 percent of GDP in FY2018/19; (ii) interest rate controls; and (iii) structural reforms aiming to ensure the sustainability of investment-driven, inclusive growth. The authorities reiterated their commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. The team thanks the authorities for their hospitality and constructive discussions.”

The team met with the Cabinet Secretary for the National Treasury and Planning, Mr. Henry Rotich; the Governor of the CBK, Dr. Patrick Njoroge; the Principal Secretary for the National Treasury, Dr. Kamau Thugge; the Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe, and senior government and CBK officials. Staff also had productive discussions with representatives of the private sector and development partners.

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