Successful completion of the devolution process, investment in infrastructure and regional integration are the three factors that will boost Kenya’s quest for economic transformation.
This was the message from the International Monetary Fund managing director Christine Lagarde as she began her maiden three-day visit to the country on Monday.
Meeting members of the Kenyan business community in Nairobi, Ms Lagarde said the country has made remarkable economic gains over the past few years on the back of bold reforms that have laid the foundations to lift the economy to middle-income status within the next decade.
BUILD ON MOMENTUM
"Kenya has indeed come a long way over the past few years. The key is now to build on this momentum, with emphasis in the following areas. We might call them the ‘Three C’s’: completing fiscal devolution; closing infrastructure gaps; and continuing regional integration,” Ms Lagarde.
During her visit, she will be hosted by President Kenyatta and other top government officials to meetings at which new partnerships between the IMF and Kenya will be assessed.
In his brief to the President, National Treasury Cabinet Secretary Henry Rotich said the government will be seeking access to bigger credit facilities to help cushion the country against unexpected external and internal shocks that it remains vulnerable to.
“Considering that we have almost exhausted our Poverty Reduction and Growth Trust (PGRT) window, we need to make a strong case to the IMF MD for a bland precautionary facility that involves both PGRT and the General Resources Account which is non-concessional,” Mr Rotich said.
The new facility, Mr Rotich said, would serve as an insurance policy in the event of unexpected shocks.
“This should be a facility of last resort and should only be used when it is clear that policy actions alone are not sufficient to effectively respond to the ensuing shocks,” the statement reads.
In her speech, Ms Lagarde lauded the government for adopting policies that have helped anchor the conditions for a strong and stable growth but also acknowledged the external shocks the country is likely to suffer as it opens its financial markets to the globe.
“Kenya has built a strong external position and is now in a favourable condition to tap international financial markets with the planned Eurobond issue. Going forward, as Kenya becomes more integrated in the global economy, it is bound to be exposed to external shocks through spillovers from trading partners’ economies or volatility in international financial markets,” she said.
“Further bolstering its foreign reserve position and lowering its debt burden will ensure that the country is resilient to these shocks.”
But the economic gains the country has made in the past, Ms Lagarde said, will only be sustainable if the government maintains its reform agenda, invests more in infrastructure and complete the fiscal devolution process.
“It is imperative that devolution is done right. That means spending needs to remain within the available envelope of public resources — and be transparent. It also means avoiding duplication of functions between the central and local government,” Lagarde said.
“Proper management of public resources is very important. Transparency, accountability and publication of information cannot be over-emphasized, especially with minerals such as oil and gas.”
While encouraging foreign investment in the country’s infrastructure development, the IMF chief cautioned that the financing agreements must remain consistent with a sustainable debt position.
She called for a deeper integration of the East African Community in order for the countries to continue enjoying the opening up of new markets, emergence of a middle class and enhanced domestic demand which have become an engine for growth.
“In that context, the heads of state of the EAC recently agreed on a roadmap toward a monetary union. This is an opportunity but also a major challenge. It will be important to draw upon the experience and lessons learned from other regions and to manage the process carefully,” she said.
Kenya Private Sector Alliance chairman Vimal Shah called on international investors to take advantage of the economic gains the country has made in the past few years, emerging from a poverty-stricken country to being a key business hub in the continent.
“Kenya is investible, it is an open economy and a fertile ground for investors,” Mr Shah said.