The International Monetary Fund (IMF) boss Kristalina Georgieva was recently in Kenya where she met top government officials including President William Ruto.
She sat down with the Business Daily after a visit in which she described Kenya as an innocent bystander in the world’s economic shocks.
You are in Kenya, and you have met the President. What policy conversations are you having with key policymakers?
Let me first say that it is wonderful to be back in Kenya, beautiful, dynamic and with great deals happening since I last came five years.
The meeting with the President and Cabinet members was focused on how Kenya can overcome the exogamous shocks it is experiencing.
We know that as a result of Covid and war in Ukraine, inflation shot up, interest rates jumped and countries like Kenya found themselves innocent bystanders hit by those shocks.
For Kenya what it meant was no access to international markets for now and for pressure to withstand the funding squeeze that has come as a result.
We have a very strong programme with Kenya, we are financing now and we intend to expand by deploying a new long-term concession of financing instrument we have created resilience and sustainability, which will be a theme here next week to welcome that.
What were the key issues?
The issues we concentrated on were three — first, the fiscal position of Kenya. I want to give my strongest support for the decisiveness of the government to make sure that at a time when there is no access to international markets, the fiscal position of Kenya is strong.
There is a budget proposal that puts Kenya in a very prudent position.
Second, we talked about pressures that are coming through the exchange rate, when interest rates are high dollar, and euro-denominated debt and the currency depreciates as all other currencies in the region are down, managing the exchange rate is a very important policy objective.
Our recommendation is to allow the exchange rate to move.
Why? Because protecting it means depleting reserves and the country needs these reserves for its imports as well as for the servicing of debt, this year, and next year.
Third, we talked about growth opportunities, Kenya has the significant potential to leap-frog, it has proven it through M-Pesa, and it is a country where the investment climate is therefore, investing in Kenya’s domestic investments as well as investments from outside offers thence for the country to do much better.
We see in Kenya remarkably strong policy, and coherence and that is what we hope to benefit you people here in Kenya in the years to come.
When you look at an economy such as Kenya, and especially within the context of the geopolitical fragmentation we are seeing globally, how do you think we can leverage trade to build on resilience?
We know that Africa is not taking full advantage of the benefits of trade, neither inter-continental trade nor trading with the rest of the world.
Most of the exports from Africa are still commodities, which is not the way to go, and inter-continental trade is suffocated by high tariffs but especially high non-tariff barriers.
Policymakers in the continent have taken a very important decision in 2018, the African Continental Free Trade Area we have seen remarkable support as 44 countries have ratified out of the 54, and almost all countries of the continent have signed, and now is the time to accelerate the implementation of this agreement.
We have assessed the potential of implementing it, as lifting intercontinental trade by 53 percent if tariff and non-tariff barriers are eliminated
How do you assess the progress of the sovereign debt roundtable?
We have to recognise that in the last decades, the creditors’ landscape has changed dramatically but for public sector creditors, many new creditors were not there before and private sector creditors that made it much more complicated and transfusion is really difficult.
The G-Seven G-20 discussions around that have all led to a very strong mandate for the IMF to step up work on the transfusion.
We have the common framework that currently has only benefited Chad, it is about to benefit Ghana, Zambia and you know, not too far in the near future Ethiopia, and what we see are three problems to be solved, the first one is timeliness.
There has to be predictability from the moment the country asks for treatment until the transfusion is achieved.
Second, the incentive to creditors act faster by providing debtor countries with debt services suspension from the moment they ask, the point you made and I completely agree with, and three, currently only low-income countries are eligible but we have seen countries like Sri Lanka in need of that treatment.
This Spring meeting in Washington, we brought together for the first time, the global sovereign debt roundtable participants at the highest level of the ministers of finance, and central bank governors.
It is very important that it made progress why?
Because for the first time, we bring a roundtable of representatives of the traditional creditors, the Paris Club of new creditors, China, Saudi Arabia, India, and Brazil, of the private sector; big institutional investors as well as organizations of private sector lenders and debtor countries so we had a very constructive discussion.
I was very encouraged to hear from the private sector from China a commitment for this to work because the debtor countries suffer but the creditors across other countries also suffer if they cannot rely on ever being paid.
When do you project when we could begin seeing easing out of global market conditions?
Well, the difficulty the world faces is a combination of slowing growth and stubborn inflation. We project this year’s global growth to be down to 2.8 percent from 3.4 percent last year.
In Africa, down to 3.6 percent from 3.9 percent the year before, and unfortunately, the slow growth, the weak growth is expected to continue in the medium term, actually, we project an average of 3 percent and at the same time while we can say inflation picked up last year 8.7 percent global inflation, it is now 7 percent this year.
We don’t see inflation reaching Central Bank targets until all the way in 2025. So, that means countries have to braze for this slow growth, and high inflation time and be disciplined, bring inflation we discussed this with the Kenyan leadership.
Bring inflation down, keep it down, be very prudent with what you spend money on because of this squeeze and above all, invest in structural reforms that would open up opportunities for higher productivity, and high growth in Kenya, one thing that I admire is the commitment to education because skills win in the world of rapid change.
