By David Musyoka and Ronald Njoroge
Sept. 25 (Xinhua) -- The International Monetary Fund (IMF) on Tuesday forecast Kenya's Gross Domestic Product (GDP) for the 2012 and 2013 financial year to grow at 5 percent.
IMF Assistant Director for Africa Domenico Fanizza told journalists in Nairobi that the bank's impression of the economy is that despite a challenging global economic environment, this year's growth will surpass last year's 4.4 percent growth."Our projection is that Kenya will achieve 5 percent economic growth for the 2012 and 2013 due to high domestic consumption and investments, unless the global economy slows down further," Fanizza said at the end of his 12-day visit to Kenya to carry out the fourth under the ECF program, the IMF in January 2011 approved a 505 million U.S. dollar loan while in December of the same year it approved a further 755 million dollars to
Kenya. He noted demand for key export products from advanced economies has remained steady and that Kenya has even managed to diversify its trading partners.
According to the IMF official, sufficient rainfall has enabled agricultural production and domestic power production to increase and thus reduced the country's reliance on expensive food and oil imports. He commended the treasury for maintaining fiscal discipline despite spending pressures and revenue collection shortfalls."We agree with the government's position that the rising demands for public wage bills could be met through reallocation of funds from the existing budget and not from increasing public spending," Fanizza said. He noted his financial institution supports the enactment of the proposed Value Added Tax (VAT) bill. "Since the law will among other things, exclude small shops from the tax, it will target the rich and middleclass who shop from establishments that have turnover of over 59,000 dollars," the director said.
According to the IMF, the revenues can then be used to subsidize the low income earners through targeted programs. The IMF also commended Kenya for accumulation of international reserves. "We are positive that the country will use its 5 billion dollars foreign exchange reserves to maintain a stable exchange rate regime as well as buffer the nation against any external shocks," Fanizza said.IMF Resident Representative for Kenya Ragnar Gudmundsson said the east African nation could achieve its inflation target by the end of the year. He noted that due to prudent monetary and fiscal policies the inflation rate moved from a high of 20 percent last November to currently about 6 percent. "So Kenya could reach its target of five by end of December 2012," Gudmundsson said.He said Nairobi has also benefited from the opening up of its country to new markets such as China and India. The representative noted beneficial policies by the government have lead to macro economic stability.
The IMF official said the growth in credit to the private sector year to year currently stands at 13 percent, down from 37 percent last year. "The increase in the key central bank rate last year was instrumental in reducing the unsustainable credit to the private that was partly responsible from high inflation," he said. Gudmundsson said the country's private sector including the banking industry has remained resilient even with a high interest regime that is now slowly coming down. The representative said economic growth cannot take place in an environment of high inflation. He also said the estimated total public debt for the 2011/2012 financial stood at 44.6 percent of the GDP while in the current year, the figure will close at around 43.8 percent of GDP. (Xinhua)