“The authorities’ program sets the basis for a return to durable and inclusive growth and identifies a clear path to reduce debt vulnerabilities, while securing space for needed social and development spending,” IMF Deputy Managing Director Antoinette Sayeh said. “Looking ahead, the authorities should sustain their consolidation efforts by continuing to improve spending efficiency and undertaking further revenue administration and tax-policy measures.”

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Sayeh said it’s important for Kenya to maintain momentum on its structural reform agenda, including efforts to improve oversight and management of state-owned enterprises.

The Central Bank of Kenya’s monetary policy should remain accommodative as long as inflation and price expectations remain well-anchored within the target band, Sayeh said. Keeping a close supervision on credit risks and provisioning should be a priority, she said.

The government plans to narrow its budget deficit for the year starting July 1 to 7.5% of gross domestic product from an estimate of 8.6% in the current period. The forecast assumes the government will achieve an economic growth rate of 6.6% this year and increase tax revenue. East Africa’s largest economy expanded about 0.6% in 2020 as the pandemic curbed investment.

GDP Forecast

The IMF said that Kenya’s growth is now estimated to at 6.3% in 2021, compared with 7.6% in its April World Economic Outlook.

Under the 38-month IMF program, “the primary balance target for end-March was achieved by a comfortable margin, alongside all targets related to debt guarantees as well as the Central Bank of Kenya net international reserves,” Kenyan National Treasury Secretary Ukur Yatani said in a statement on Twitter on Wednesday that preceded the IMF’s announcement.

Yatani said that the government expected the successful review completion and disbursement given Kenya’s progress toward its goals.

Targets on tax revenue, social spending and outstanding exchequer requests “were generally met except by a marginal under-performance of 0.3% of GDP,” Yatani said. The government has strengthened public accountability, and completed a financial evaluation of 18 state-owned companies that they plan to reform and minimize the fiscal risks they pose, he said.