Kenya's economy to grow by 5 percent, forecasts IMF

Nairobi, Sep 26 (IANS) The International Monetary Fund (IMF) has 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, reported Xinhua.

"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 Tuesday at the end of his 12-day visit to Kenya to carry out the fourth review on the progress of the use of the Extended Credit Facility (ECF).

Under the ECF programme, the IMF in January 2011 approved a $505 million loan while in December of the same year it approved a further $755 million 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 middle-class 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 foreign exchange reserves to maintain a stable exchange rate regime as well as buffer the nation against any external shocks," Fanizza said.