Kind words from the IMF, no less!

Kenya last week received a rare accolade from visiting International Monetary Fund managing director Dominique Strauss-Kahn on the steps the country had taken to bring its economy back on the growth path.

According to Mr Strauss-Kahn, the implementation of sound economic policies by the Kenyan authorities had borne fruit as the Fund could see signs of life returning in the economy, with rebounds in trade, export earnings and bank credit.  

His visit came a year after he visited Tanzania on a mission to define how the Fund could assist Africa to ride out the global financial crisis.

While the two visits to East Africa can be downplayed by critics as sideshows by the IMF, it is critical at this point in time to appreciate Mr Strauss-Kahn’s move to rally round East Africa by extending flexible financial support to the region.

In June 2009, the Fund provided about $200 million under the rapid access component of the Exogenous Shocks Facility.

Later in the year, Kenya received about $350 million through the general and special allocations of Special Drawing Rights to all IMF members.

Today, a nascent recovery is taking place.

Kenya’s macroeconomic performance and real growth is now projected at 3.2 per cent this year, up from 2.2 per cent in 2008/09 — despite a prolonged drought and its spillover effects. Over the medium term, growth is expected to rise gradually to 6.5 per cent

But even as East Africa shows early signs of recovery, it is vital that the stakeholders behind it not rest on their laurels.

As the IMF boss said, there is still a need to strengthen and deepen the existing policies to shield the economy from future shocks.

This includes the strengthening of budget positions, reduction of debt burdens, taming inflation as well as building comfortable reserve cushions.

With support from the IMF, the challenge ahead is for Kenya to step up implementation of structural reforms.

Despite updating of the Governance Action Plan, the Public Finance Management Bill, meant to address some weaknesses in structural fiscal issues, and the Banking Act (Amendment) Bill, meant to strengthen the hand of the Central Bank of Kenya by consolidating supervision and prompt corrective action — are yet to be brought before parliament.

Several other pieces of legislation designed to improve economic governance have not been enacted.

The IMF visit should also be a wake-up call to commercial banks to start bringing down their interest rates to expand credit to the private sector, especially at this time when the Monetary Policy Committee has significantly brought down Central Bank rates.

Today, borrowers continue being charged exorbitant interest rates even after the downward revision of the country’s inflation rate.

It is time we lay firm policy foundations for Africa’s economic transformation.