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IMF says Kenya economy buoyant, but urges budget cuts

IMF-logoNAIROBI, Kenya, Nov 5 – The International Monetary Fund (IMF) says Kenya’s economy is doing better than the rest of sub-Saharan Africa and will continue to grow comfortably despite external shocks.

IMF Kenya Resident Representative Armando Morales however says the government needs to consider budget cuts to counter the high interest and exchange rates.

“Kenya has an advantage because they are not an oil exporter and China is not one of their main export markets. The slowdown in China and the fall of oil prices will cause little harm to the country’s economy,” he said.

He says he does not expect any major revision of the country’s growth forecast. Earlier, the IMF revised its forecast for Kenya’s growth to 6.5 percent this year from 6.9 percent.

He says Kenya’s debt is sustainable, and classified it as at ‘low risk of distress.’
“To move to distress unit you need to move to two categories – moderate risk and high risk, and Kenya is way below that so it’s very unlikely that Kenya will face a situation of distress in the next coming years,” he added.

He said the budget approved by government considered a lower level of interest and exchange rates and in order to maintain the same deficit the government needs to reassess the priority of spending and identify areas of spending that are not productive.

He has urged the government to manage perception by giving information to the public to avoid rumours and speculation.

Among the sectors supporting Kenya’s growth in the last five years include construction, IT, trade, financial and education.

Some of the new trends in the first half of 2015 include agriculture over performing while transport recovered, financial, trade and ICT slowed slightly, manufacturing is still lagging behind and the real estate boom has reversed.

“Agriculture, transport, public administration, construction and financial above their historical average while manufacturing, real estate, IT, trade, and education slowing below their historical average,” he added.

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The outlook comes weeks after the World Bank released its report, urging Kenya to ease on its growing expenditure pointing out that it presents risk to growth for the country.

READ: World Bank says Kenya’s spending unsustainable

The bank revised downward Kenya’s 2015 economic growth forecast to 5.4 percent from six percent as well as its 2016 growth forecast to 5.7 percent from a previous estimate of 6.6 percent.

The bank says the current increase in government spending is not sustainable citing that the overall fiscal deficit of 8.3 percent of Gross Domestic Product in 2014/2015 financial year and a budgeted 8.7 percent of GDP in 2015/2016 is high by any standard.

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