IMF team gives thumbs up to Kenya

Kenya appeared set to receive more loans from the International Monetary Fund (IMF) and the World Bank after a mission from the former endorsed Treasury and Central Bank of Kenya management of the economy.

IMF has so far this year loaned the country an unprecedented $550 million (Sh41 billion) in emergency aid, and its board is expected to clear the way for further funding going by the ringing endorsement of the fiscal and monetary operations.

The IMF executive board is scheduled to discuss Kenya’s funding programme in Washington early next month and will rely heavily on the mission report.

In the past two years Treasury and CBK have faced some of the toughest times since the 1990s when Kanu chiefs destroyed the economy as post-election violence, the global economic crisis and the worst drought in decades forced them into constant crisis management.

IMF says the economy is likely to grow at a paltry 2.7 per cent in 2009, a far cry from the 7 per cent of the pre-crisis 2007. Economic growth is forecast to hit 4 per cent in 2010 and creep up to 6.5 in the near future.

A statement Friday by head of mission Michael Atingi-Ego said: “The authorities’ policy response to the crisis was appropriate and timely…the Central Bank of Kenya (CBK) adhered to its monetary target, and given the weakening demand for private sector credit, short-term interest rates declined, contributing to an easing of budgetary pressures on domestic debt service.”

Among the key points IMF isolates for praise in the management of the country’s monetary policy is regulation of the banking industry. It notes supervision has been strengthened while CBK has enforced recapitalisation and adequate provisioning of loans in the sector.

And despite the liquidity (cash) crunch in the banking sector early this year - arising from the stand-off between Treasury and Parliament over the so-called Supplementary Budget errors - IMF says CBK prudent management has resulted in adequate liquidity in the system.

The Kenya banking industry has avoided a systemic crisis since 1998 with the only notable bank failures since being Trust Bank and Euro Bank, which were largely looting platforms during the Kanu era. Treasury has ordered banks to crank up capital from Sh250 million to Sh1 billion by 2012 to buttress the system’s stability.

IMF also notes the currency reserves CBK has built up over the years were used to finance the current account deficit arising from falling exports and huge food import requirements. However, the mission calls on Kenya to accelerate economic reforms to encourage investment to diversify the economy and avoid what it calls adverse shocks. It singles out several pieces of pending legislation that should be enacted in that spirit.

“Enacting several pieces of legislation that are still pending - including the banking, new deposit insurance and importantly the anti-money laundering bills - will further strengthen the functioning of the financial sector,” it states.

The Money Laundering Bill is still stuck in Parliament and has attracted a lot of attention from donors and countries that have huge stakes in controlling the international crime. Currently, money laundering is not a crime in Kenya, making the country a haven for drug dealers, pirates and even terrorists.