IMF and Kenya agree to $500 million credit program

[News_Editor]

IMF and Kenya agree to $500 million credit program

2010-11-24 02:47:51 GMT+7 (ICT)

WASHINGTON, D.C. (BNO NEWS) -- The International Monetary Fund (IMF) on Tuesday announced that it has reached a staff-level agreement on $500 million extended credit facility program with Kenya.

An IMF mission was in Nairobi from November 3 to 18 to discuss economic policies that the IMF could support through an Extended Credit Facility (ECF). At the conclusion of the visit, Domenico Fanizza, Mission Chief for Kenya, confirmed the agreement.

"I am pleased to confirm that the mission has reached an agreement in principle with the Kenyan authorities on an economic program through December 2013, to be supported by a SDR 325.7 million (about US$500 million) Extended Credit Facility," Fanizza said.

"The agreement reached with the authorities is subject to approval by the IMF’s management and Executive Board, which is scheduled to consider the request for the ECF in January 2011," he added, underlining the main goal, which is to "transform Kenya into a dynamic economy by raising growth sustainably."

The program focuses on creating fiscal scope for: investing in infrastructure and the energy sector, especially geothermal power, which will help Kenya deal with the challenges from global warming; as well as spending to implement the new Constitution that will help to address the long-standing social and political problems holding back Kenya’s high growth potential.

The program strikes a balance between devoting resources to these purposes and fiscal adjustment as authorities target a gradual reduction of the fiscal deficit, which should bring the government debt-to-gross domestic product (GDP) ratio below 45 percent by 2013/14.

Fanizza also said that tax policy reforms will seek to simplify the tax code, eliminate income tax exemptions, and revamp the value added tax, also known as VAT. In addition, monetary policy will focus on containing inflation within the 5 percent target, maintaining a floating exchange rate regime, and the gradual accumulation of international reserves to reduce Kenya’s vulnerability to external shocks.

Financial sector reforms will further broaden access to financial services, bring down transaction costs, and eventually lower the spreads between deposit and lending rates, Fanizza explained.

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