IMF pushes for more investments to spur growth

Sustained funding of social and investment projects will help spur growth despite the tough economic conditions that Kenya is facing, the International Monetary Fund (IMF) said on Wednesday.

The lender also supported the retention of a monetary policy to reduce inflation.

High inflation and a weakening of the shilling against international currencies have slowed economic growth in recent months, affecting revenue collection despite a huge appetite for funds to finance projects such as infrastructure and the implementation of the Constitution.

Statistics from Treasury showed that the country missed its domestic borrowing and revenue collection targets in the first quarter of the 2011/12 (July-June) fiscal year. Net domestic borrowing in July to September stood at Sh12.3 billion against a target of Sh49.8 billion for the quarter. Total revenue collection was off its projection by Sh30.2 billion to stand at Sh149.1 billion.

This has seen the Treasury embark on a raft of austerity measures such the planned withdraw of special tax cuts on kerosene, diesel and wheat by June to close widening revenue gaps.

Non-core expenditure by ministries have also been frozen with Cabinet last month approving cuts in government expenditure including official trips abroad, advertising, hospitality and purchase of new vehicles.

The IMF said it supported the planned austerity measures, saying it would ease pressure on expenditure.

“Noting the progress made in reducing the primary deficit, they welcomed the authorities’ plans to adopt a more ambitious medium-term target by rationalising non priority expenditure and front-loading adjustment,” IMF executive board said following the conclusion of an assessment mission.

The institution, however, called for continued funding of main programmes that have a direct impact on economic growth.

“Directors underscored the importance of protecting key outlays, in particular emergency food relief for the population, targeted transfers to the poor, implementation of the new constitution, and high-priority investments,” IMF executive board said.

Finance minister Uhuru Kenyatta said on Tuesday the government was keen on the austerity measures to rationalise expenditure.

“We want to cut as much as possible especially in non-priority areas so that we can be able to release additional funding to priority areas like the security situation,” the minister said .

Kenya continues to battle inflation that rose for 13 straight months to peak at 19.72 per cent last November, before cooling to 18.93 per cent in December.
aodhiambo@ke.nationmedia.com