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Kenya: IMF Agreement
Kenya: IMF Agreement
Date distributed (ymd): 000809
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: East Africa
Issue Areas: +economy/development+
Summary Contents:
This posting contains excerpts from press release announcing the
new agreement between Kenya and the International Monetary Fund,
which went into effect on August 4 with the first installment of
$18 million of loans of $198 million over a three-year period. For
the full text of related documents, see
http://www.imf.org/external/country/ken/index.htm
A different perspective on Kenya's future appears in another
posting sent out today with a speech to the Kenyan Community Abroad
by human rights lawyer Njonjo Mue.
+++++++++++++++++end profile++++++++++++++++++++++++++++++
International Monetary Fund
Public Affairs: 202-623-7300 - Fax: 202-623-6278
Media Relations: 202-623-7100 - Fax: 202-623-6772
Press Release No. 00/45
July 28, 2000
IMF Approves Poverty Reduction and Growth Facility (1) Loan for
Kenya
The International Monetary Fund's (IMF) Executive Board has
approved in principle a three-year Poverty Reduction and Growth
Facility (PRGF) credit to Kenya totaling SDR 150 million (about
US$ 198 million) to support the nation's economic and structural
reform program.
A final decision by the IMF Executive Board is pending discussion
by the World Bank Executive Board of Kenya's interim Poverty
Reduction Strategy Paper (PRSP). The World Bank Board is expected
to meet on August 1, 2000 to consider Kenya's PRSP.
Under the PRGF, the first annual loan to Kenya will be equivalent
to SDR 30 million (about US$40 million), and the first installment
equal to SDR 13.6 million (about US$18 million), which will be
available when a final decision by the IMF Executive Board is
taken.
In commenting on the Executive Board discussion on Kenya, Stanley
Fischer, First Deputy Managing Director and Acting Chairman, made
the following statement:
"The Kenyan authorities have pursued generally cautious
macroeconomic policies since early 1998 and have made efforts
recently to address weaknesses in the governance area, thereby
paving the way for an arrangement under the PRGF. In their Letter
of Intent, the authorities commit themselves to consolidating
these policies and efforts in order to achieve sustained high
growth and poverty reduction. In this regard, they have prepared
an interim Poverty Reduction Strategy Paper (PRSP) as a basis for
the development of a full participatory PRSP and for Fund
concessional assistance.
"The authorities' medium-term reform program aims at maintaining
macroeconomic stability and promoting growth with poverty
reduction. Removing the constraints to growth and poverty
reduction requires the continued pursuit of measures to improve
governance, firm implementation of appropriate macroeconomic and
structural reforms, and significant reallocations of expenditure
to priority areas, such as health and education. The planned civil
service reform, which would free resources for priority social
spending, is consistent with such reallocation.
"Improving governance is an essential element of the poverty
reduction strategy. Early passage of the code of ethics and the
anti-corruption and economic crimes legislation is especially
important in this regard. The authorities are also placing
emphasis on improving expenditure management systems and on
rationalizing the project roster to increase the transparency and
efficiency of government operations. Efforts to strengthen the
banking sector are being reinforced, including through the
privatization of state-owned banks and the improvement of bank
supervision.
"The medium-term program envisages key supply-side measures to help
place the economy on a higher growth path. Actions include the
removal of distortions in various markets, especially in
agriculture, rehabilitation of infrastructure, and improvements in
the efficiency and governance of public enterprises. The
elimination of virtually all suspended import duties, making the
trade regime more predictable and transparent, is welcome. This
needs to be followed by the formulation and implementation of a
program to rationalize and reduce remaining import duties and
exemptions.
"The authorities face the important challenge of addressing the
effects of the unfolding drought on food and energy supplies. The
Fund stands ready to assist Kenya in these difficult
circumstances, in the context of the broader efforts led by the
international community," Mr. Fischer said.
Annex
Program Summary
Kenya's socioeconomic conditions deteriorated significantly in the
1990s because of stop-go macroeconomic policies, slow structural
reform, and pervasive governance problems that resulted in bouts
of financial instability, a rapid buildup of short-term debt, and
high real interest rates. Since early 1998, the government has
been addressing some of the causes of financial instability and
low growth. The fiscal deficit (on a commitment basis before
grants) has been gradually reduced and is estimated to have been
0.6 percent of GDP in 1999/2000. Monetary policy has been
generally conservative. The government has been preparing the
ground for key structural reforms in privatization and public
service, and since mid-1999 important steps have been taken to
address governance problems. These measures have helped increase
the confidence of the international community, however investor
confidence has been slow to turn around, and real GDP growth
declined to 1.4 percent in 1999 from 1.8 in 1998.
Reductions in the fiscal deficit (after an initial increase) and
the domestic debt burden will be aimed at sustainably reducing
real interest rates and building confidence in the government's
fiscal prudence. These efforts will be accompanied by measures
aimed at reducing the tax burden (particularly on the poor),
improving tax administration, as well as at strengthening
expenditure management. Monetary policy will be geared to keeping
inflation low, and the exchange rate will remain market
determined.
The structural reform program focuses on streamlining the public
service, reducing the role of government in commercial activities,
and prioritizing public expenditure. The privatization program
will focus on key enterprises that provide essential
infrastructure services, including the Kenya TELKOM and the Kenyan
Commercial Bank. Suspended duties on imports have been eliminated
and the authorities are committed to implementing over the program
period a tariff reform aimed at reducing domestic protection.
Poverty Reduction Strategy
The program's strategy, which is closely linked to the recently
initiated medium-term expenditure framework (MTEF), was worked out
in consultation with stakeholders from civil society and is
expected to be fully developed by May 2001, in the context of the
full Poverty Reduction and Strategy Paper (PRSP). Expenditure
reallocations toward priority sectors need to be defined, in close
consultation with stakeholders (especially the poor), in the full
PRSP and subsequently incorporated in the 2001/02 MTEF. The
planned public service reform and the envisaged reductions in the
debt service burden are expected to provide room for additional
resources to be allocated to poverty reduction programs over the
medium term. In the meantime, the fiscal program for 2000/01
focuses on a few key poverty reduction measures and some
intraministerial reallocations aimed at improving the targeting of
existing expenditure.
Kenya joined the IMF on February 3, 1964 . Its quota (2) is the
equivalent of SDR 271.40 million (about US$359 million). Its
outstanding use of IMF financing currently totals the equivalent
of SDR 78 million (about US $103 million).
(1) On November 22, 1999, the IMF's concessional facility for
low-income countries, the Enhanced Structural Adjustment Facility
(ESAF), was renamed the Poverty Reduction and Growth Facility
(PRGF), and its purposes were redefined. It is intended that
PRGF-supported programs will in time be based on country-owned
poverty reduction strategies adopted in a participatory process
involving civil society and development partners, and articulated
in a poverty reduction strategy paper (PRSP). This is intended to
ensure that each PRGF-supported program is consistent with a
comprehensive framework for macroeconomic, structural, and social
policies to foster growth and reduce poverty. At this time for
Kenya, an interim PRSP sets out a preliminary framework in a
statement by the government and the participatory process is
underway. It is understood that all policy undertakings in the
government's statement beyond the first year are subject to
reexamination and modification in line with the strategy that is
to be elaborated in the PRSP. Once completed and broadly endorsed
by the Executive Boards of the IMF and World Bank, the PRSP will
provide the policy framework for future reviews under this PRGF
arrangement. PRGF loans carry an interest rate of 0.5% a year, and
are repayable over 10 years with a 5 ½-year grace period on
principal payments.
(2) A member's quota in the IMF determines, in particular, the
amount of its subscription, its voting weight, its access to IMF
financing, and its share in the allocation of SDRs.
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC provides
accessible information and analysis in order to promote U.S.
and international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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