Kenya: Monetary Policy Committee Meeting (29.05.2017)
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WASHINGTON D.C., United States of America, April 5, 2016 – An International Monetary Fund (IMF) team, led by Laure Redifer, visited Kigali from March 22–April 5, 2016 to carry out discussions with the Rwandan authorities on the fifth review of their economic and financial program supported by the IMF’s Policy Support Instrument (PSI), and to reach understandings on economic policies that could be supported under the IMF’s Stand-by Credit Facility (SCF).
Ms. Redifer issued the following statement at the end of the visit:
“The IMF team reached staff-level agreement with the authorities, subject to approval by IMF Management and the Executive Board, on policies that could support completion of the fifth review of Rwanda’s PSI-supported program, as well as a new agreement on an 18-month arrangement under the Fund’s SCF. The Executive Board meeting is tentatively scheduled for May 2016.
“Rwanda’s economic performance in 2015 remained robust, with GDP growth of 6.9 percent. Growth in 2015 was buoyed by strong construction and services activity, with agriculture and manufacturing also performing well. Consumer price inflation remained contained, averaging 2.5 percent for the year, though it increased in the second half of 2015 due to higher food prices and administrative price increases. In February 2016, prices were 4.4 percent higher than a year before.
“However, new challenges emerged over the course of 2015 as a result of global developments. Lower prices and demand for Rwanda’s minerals almost halved the country’s mineral exports, leading to a significant loss of export revenue. This was exacerbated by lower-than-projected inflows of private capital and remittances, which together led to downward pressure on the Rwandan franc and foreign exchange reserves.
“Despite these developments, macroeconomic policy performance through end-December 2015 remained in line with program objectives. Most quantitative targets were met, and were supported by structural reforms, notably changes to boost domestic revenue collection, reduce liquidity overhangs, strengthen financial market supervision and functioning, and improve domestic revenue collection. Planned measures to revise the law for property taxes and improve the timeliness of public reporting on budget execution are taking somewhat longer than originally anticipated.
“Over the medium term, growth prospects remain in line with Rwanda’s high potential, and the mission welcomes ongoing initiatives to promote export diversification and encourage local production of what Rwanda currently imports, in order to improve Rwanda’s resilience to external shocks. These policies will, however, take time. In the near term, more immediate measures are needed to deflate external pressures and stem the drop in foreign exchange reserves. The mission welcomes, therefore, the authorities’ commitment to implement more cautious monetary policy and postpone some non-priority public spending to help dampen still-strong demand for imports. Allowing the exchange rate to continue to adjust as necessary will be critical in this regard. The mission expects that successful implementation of these policies will maintain economic growth at around 6 percent, while keeping inflation below 5 percent.
“The mission commends the authorities for decisive economic policies aimed at safeguarding external sustainability and reinforcing Rwanda’s long-term development potential. The mission also welcomes the authorities’ ambitious program of supporting forward-looking policy reforms aimed at strengthening the efficiency of public spending; and improving tax compliance.
“The mission met with Minister of Finance and Economic Planning Honorable Ambassador Claver Gatete, Governor of the National Bank of Rwanda Honorable John Rwangombwa, Minister of Trade and Industry Honorable François Kanimba, and other senior government officials, private sector representatives, and development partners. The mission thanks the authorities and other interlocutors for the open, fruitful and collaborative discussions.”
 Rwanda’s PSI was approved by the IMF Executive Board on December 2, 2013 (see Press Release No.13/483). The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF’s Executive Board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies. Details of Rwanda’s current PSI are available atimf.org/rwanda.
 The SCF supports low-income countries that have reached broadly sustainable macroeconomic positions, but may experience short-term financing needs, including those caused by shocks. The SCF supports countries’ economic programs aimed at restoring a sustainable macroeconomic position consistent with strong and durable growth and poverty reduction. (see imf.org/external/np/exr/facts/scf.htm).
NAIROBI, March 31, 2016—Kenya’s economy is projected to grow at 5.9% in 2016, recording an improvement over the 5.6% estimated for 2015, says a new World Bank Group economic report released today. The Gross Domestic Product (GDP) is expected to improve further to 6% in 2017.
The Kenya Economic Update (KEU): Kazi ni Kazi: Informality Should Not Be Normal attributes the positive outlook to low oil prices, good agriculture performance, supportive monetary policy, and ongoing infrastructure investments. Kenya experienced strong economic performance in 2015, and has exceeded the average growth for Sub Saharan Africa countries consistently since 2009, the report adds.
The KEU reviews Kenya’s economic performance in the context of three global factors which have been discussed for some time, and are now in full force. These include: industrialized countries’ monetary policy adjustment; the end of the commodity price boom, and the rebalancing of Chinese economy. The report says that the interaction between these global factors with domestic policy and conditions will determine Kenya’s growth in the near term.
“The prevailing global conditions call for a more vigilant policy stance which is supportive of growth,” said Diarietou Gaye, World Bank Country Director for Kenya
According to the report, Kenya’s economy remains vulnerable to domestic risks that could moderate the growth prospects. These include: first, the possibility that investors could defer investment decisions until after the elections; second, that election related expenditure could result to a cut back in infrastructure spending, and third, security remains a threat, not just in Kenya but globally. Finally, changes in monetary policy in industrialized countries could trigger volatility in financial markets putting the currency under pressure.
The KEU, whose special focus is on jobs notes that Kenya is creating more jobs now, but mainly in the informal sector. In the next ten years, nine million youth will enter the labor market, a majority will continue to find jobs in the informal sector, the report adds.
“Kenya is not short of jobs; it is short of high productivity jobs,” said Jane Kiringai, the Bank’s Senior Country Economist for Kenya and the lead author of the report. “To increase productivity of jobs in the informal sector, policy interventions could be geared towards increasing access to broad skills beyond formal education, creating linkages between formal and informal firms, and helping small scale firms enter local and global value chains.”
To create more and better jobs, it is also imperative to reduce the cost of doing business which is necessary for a robust private sector, the report adds.