NAIROBI, April 14 (Xinhua) -- The International Monetary Fund (IMF) has called on Kenyan authorities to move forward with the substantial reduction in the budget deficit envisaged for 2017/18 financial year to help spur economic growth.
The IMF mission which ended its ten-day visit to Kenya late Thursday said reduction in fiscal deficit which stands at 17 billion U.S. dollars will help put the debt on a declining path as envisaged under the program.
"The IMF staff team urged the authorities to achieve the fiscal deficit target envisaged under the program for 2016/17, which accommodates a substantial increase in foreign-financed public investment," the mission said in a statement released on Thursday night.
Kenya's Treasury Cabinet Secretary who unveiled 26 billion dollar budget for the 2017/2018 financial year on March 30 said budget will be in deficit of 17 billion dollars to be financed by Kenyans through taxes.
The IMF mission led by Benedict Clements said Kenya's economy has continued to perform well, with real GDP growth reaching 5.9 percent in the first three quarters of 2016, up from 5.6 percent in 2015.
The lender said growth was supported by public investment spending, favorable weather in the first half of 2016, and a pick-up in tourism.
Inflation has increased to 10.3 percent in March, reflecting the reduced supply of key staple food items as a result of the drought, but is expected to decline as agricultural production returns to normal levels with the onset of the long rains.
According to IMF, the banking system has remained stable, and reforms by the Central Bank of Kenya (CBK) to strengthen the financial system continue.
"The external current account deficit (on a 12-month basis) narrowed to 5.5 percent of GDP in 2016 from 6.8 percent in 2015, reflecting lower oil prices, improved tea and horticulture exports, and increased remittance inflows," Clements said.
He said the exchange rate has remained stable and foreign exchange reserves have risen to 7.8 billion dollars (equal to 5.1 months of import cover) as of end-March. The banking system has remained stable.
"Discussions focused on macroeconomic policies and structural reforms aiming to ensure the sustainability of investment-driven, inclusive growth," Clements said.
"The authorities reiterated their commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability," he added.
The team also welcomed the authorities' plans to accelerate reforms aimed at mobilizing revenue to support appropriate delivery of government services at the national and county level as well as increasing the efficiency, transparency, and accountability of public spending.
The IMF mission said reforms should also aim at safeguarding financial stability by enhancing prudential regulation and supervision; and deepening structural and governance reforms to improve the business environment.
The IMF team reiterated its concerns regarding the legislated limits on deposit and lending rates introduced last September.
"Preliminary information suggests that these controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years," said Clements.
He said interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.
"Significant progress was made during the visit, and discussions will continue in the coming weeks. The team thanks the authorities for their hospitality and constructive discussions," said Clements.