IMF projects dip in Kenya's public debt

The International Monetary Fund (IMF) on Wednesday projected Kenya's net public debt will dip below 40 percent of the Gross Domestic Product (GDP) by the end of the 2014/2015 financial year.

IMF Resident Representative Ragnar Gudmundsson told journalists in Nairobi that prudent fiscal and monetary policies would be key if the east African nation is to achieve this goal.

"The IMF thinks that based on current trends and efforts on fiscal consolidation, net public debt to GDP ratio will be below 40 percent by the end of the 2014/2015 financial year," Mr Gudmundsson said on the sidelines of the launch of 2012 IMF Africa Economic Outlook at the University of Nairobi.

According to the IMF, total net public debt stands at 46 percent of GDP while the Treasury's target stands at 45 percent of GDP.

"Due to macroeconomic stability and efficient management of the economy, the level of public indebtedness is set to reach sustainable levels," the IMF representative said.

The outlook said economies in Sub-Saharan Africa registered growth of 5 percent in 2011 despite difficult external conditions.

Resilience

The IMF's Regional Economic Outlook "for Sub-Saharan Africa" said while most of the region's banking systems have proved resilient to recent episodes of global financial stress, the rapid pace of credit growth in some countries is a cause of concern.

It said the steady expansion of pan-African banking groups in the recent past may in some cases have outpaced supervisory capacity.

The Bretton Wood institution's expectation is that output growth in sub-Saharan Africa would remain strong in 2012.  

"It is prudent for government to build fiscal space during periods of economic growth in order to be able to respond to future fiscal shocks," Mr Gudmundsson said.

Data from the IMF indicated Sub-Saharan African region is the second fastest growing area after developing Asia.

"However, countries should not be complacent due to risks of external shocks and therefore need to build fiscal buffers in order to respond to any eventuality," he noted.

He called on the Treasury to shift public expenditure towards development and social sectors targeting the low-income segment of society.

Contain inflation

The IMF also concurred with the Central Bank of Kenya's stance of maintaining its key lending rate at 18 percent.

"Some measure of caution is required until the inflation rate dips to the single digit level in order to contain inflation pressures," he said.

"Only then will it be in the best interest of the country for the authorities to loosen the monetary stance."

The chairman of Kenya Bankers Association Richard Etemesi said Kenyan banks are now plugging into the global economic system as funds from domestic markets are not adequate.

"In order for the country to graduate into the next phase of development, the country as well as commercial banks will have to tap into the international debt markets," Mr Etemesi who is also the CEO of Standard Chartered Bank Kenya said.

He noted foreign direct investments alone would not be sufficient to finance the country's investments.

Kenya’s banks, he said, are at the same level of sophistication as their counterparts in the developed world.

"What is required is for regulatory reforms and oversight to keep with the pace of the evolving banking sector," he said.