Kenya: Monetary Policy Committee Meeting (29.05.2017)
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“Uganda’s annual headline inflation has increased to 5.9 per cent in June from the 5.4 percent recorded during the ended year may 2016. Uganda National Bureau of Standard Principal Statiscian Vincent Nsubuga Musoke says the rates were driven by the annual core inflation which registered 6.9 per cent for the year ending June 2016. This is lower than the 7.0 per cent that was recorded during the ended May 2016” (NBS TV Uganda, 2016)
WASHINGTON D.C., United States of America, April 6, 2016 – A team from the International Monetary Fund (IMF) led by Roger Nord, IMF Mission Chief and Deputy Director of the African Department, visited Kampala from March 21 to April 6, to conduct the sixth review of Uganda’s economic program supported by the Policy Support Instrument (PSI).
At the end of the mission, Mr. Nord issued the following statement:
“In a complex global, regional, and domestic environment, affected by election-related uncertainties, Uganda’s economy continued to perform well. Economic growth is expected to reach 5 percent in the current fiscal year and accelerate to 5.5 percent in FY2016/17, supported by the scaling up of infrastructure investment. Following a sharp depreciation of the shilling, inflation increased, with core inflation reaching 7.6 percent in December 2015, though it has since then decelerated to 6.9 percent.
“Performance under the PSI has been mixed. There has been progress on increasing tax revenue, strengthening international reserves, extending the Treasury Single Account to local governments, and establishing public investment management guidelines. The decisive monetary policy response, in the context of appropriate exchange rate flexibility, contributed to the stabilization of the shilling and successfully curbed inflation expectations. However, the end-December 2015 overall deficit target was not met, poverty reducing expenditures were below target, and some structural reforms suffered delays.
“The mission commends the authorities for the steadfast implementation of fiscal policy in a complex electoral environment. Revenue over-performed through end-December 2015 and expenditure pressures were reasonably well controlled. While some fiscal tightening had been envisaged in late 2015 in the face of significant exchange rate pressures, the economy subsequently stabilized more rapidly than expected, leading the authorities to revert to the original budget targets. However, there were some renewed fiscal pressures in early 2016, including a slowdown in revenue and some additional spending. The mission welcomes that the supplementary budget currently before parliament aims at minimizing year-end slippages. The mission encourages the authorities to strengthen efforts to boost taxpayer compliance to compensate for the revenue shortfall.
“The mission welcomes the 2016/17 budget currently before parliament, which envisages a continued scaling-up of infrastructure investment while boosting domestic revenue by 0.5 percent of GDP, in line with the objective to raise Uganda’s revenue performance to levels observed in regional and other peers. The mission encourages the authorities to continue building capacity and controls to manage large public investment projects. It will also be important to avoid within-year reallocations from public investment to less productive government spending.
“The mission welcomes the decision by the Bank of Uganda (BOU) to lower the central bank rate, consistent with the forecast of core inflation returning to its medium-term target. The mission commends the BOU for its effective communication strategy, which contributed to well-anchored inflation expectations, reflected in sharply falling yields in recent weeks. The appropriate easing of monetary policy should provide a welcome boost to private sector credit growth and support economic activity.
“The mission welcomes the approval of the amendments to the Financial Institutions Act, expected to foster credit expansion and deepen the financial sector. The mission encourages the authorities to expedite the adoption of appropriate regulations to implement the new Public Finance Management Act in line with international best practice. The mission also urges the authorities to complete the reconciliation and validation of the stock of domestic payment arrears and take all necessary measures to avoid their recurrence.
“The mission is reassured by ongoing efforts to ensure Uganda’s prompt exit from the Financial Action Task-Force’s list of jurisdictions with strategic deficiencies in the legal framework for combating money laundering and the financing of terrorism (AML/CFT). The mission urges the authorities to take the necessary steps to facilitate the prompt exit, including by passing the amendments to the Anti-Money Laundering Act and the Insurance Act before May 2016.
“The mission met with Hon. Mr. Matia Kasaija, Minister of Finance, Planning and Economic Development; Professor Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda; Mr. Keith Muhakanizi, Permanent Secretary/Secretary of Treasury; and other senior government officials, and representatives from the business, and international communities. The mission thanks all counterparts for their collaboration.
“IMF Executive Board consideration of the sixth review of the PSI-supported program is expected by end-June 2016.”
 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 (seehttp://www.imf.org/external/np/exr/facts/psi.htm). Details on Uganda’s current PSI are available at imf.org/uganda.
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.