The Executive Board of the International Monetary Fund (IMF) has completed the third review under a three-year arrangement under the Extended Credit Facility (ECF) for Kenya. The completion of the review enables the disbursement of SDR 71.921 million (about US$ 110.9 million), which will bring the total disbursement under the arrangement to SDR 272.757 million (about US$420.7 million). The Executive Board’s decision was taken on a lapse of time basis.

Kenya’s economic reform program has started to yield results, as the authorities have taken decisive measures to address inflationary and external balance pressures. As a result, inflation is abating, the shilling has strengthened, international reserves are on the rise, the debt-to-GDP ratio is declining, and the government securities market is functioning more smoothly. More importantly, economic growth has held up in 2011, decelerating only slightly from 2010, despite the severe drought in the Horn of Africa and the higher food and fuel prices.

Performance under the program was favorable through end-2011. The fiscal outcome was in line with the program, thanks to strict expenditure control. International reserves exceeded the target, monetary policy remained appropriately tight, and government spending to protect the poor was above the program threshold. The authorities also made good progress with their structural reform efforts in the areas of public financial management and tax reform. Pension reform and the reform of the pay for civil servants have recently advanced.

Looking forward, stronger growth is expected in 2012 as the effects of the external shocks abate. Monetary policy will aim to achieve low and stable inflation, and the Central Bank of Kenya (CBK) will continue accumulating foreign reserves in order to build a buffer to cope with future external shocks.

Fiscal consolidation will continue and non-priority outlays will be limited to create space for infrastructure spending and for implementing fiscal decentralization as envisaged by the new Constitution. The new VAT law will help revenue mobilization. Policies for the financial sector will focus on banking supervision, close monitoring of credit risk, and moving forward with opening up the stock exchange.

The uncertain global environment outlook—in particular the European sovereign-debt crisis and the risk for further increases in oil prices—could affect Kenya by dampening growth and widening the deficit of the external current account. Thus, policies should continue to aim at ensuring that domestic demand grows in line with supply to reduce the external imbalance and keep inflationary pressures in check.

The three-year SDR 325.68 million (about US$ 502.4 million) ECF arrangement with Kenya was approved by the IMF’s Executive Board on January 31, 2011 (see Press Release No. 11/22). The Executive Board subsequently approved augmentation of financing under the ECF arrangement to SDR 488.52 million (about US$ 753.6 million) on December 9, 2011.

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The Executive Board of the International Monetary Fund (IMF) approved a new arrangement for Niger under the Extended Credit Facility (ECF) in an amount equivalent to SDR 78.96 million (about about US$120.97 million). The Board’s decision will enable an immediate disbursement equivalent to SDR 11.28 million (about US$17.28 million).

The authorities’ program is aimed at maintaining macroeconomic stability while increasing resilience to shocks; strengthening public finance and debt management; putting in place a transparent legal and supervisory framework for the mining and petroleum sectors; and supporting private and financial sector development.

“The 2012 budget is well aligned with the authorities’ growth and poverty reduction program. Medium-term fiscal policy is rightly geared towards creating the fiscal space for increased development spending, while maintaining debt sustainability.

“Rising receipts from oil production and strengthened domestic revenue should primarily finance the planned investment. It will also be important to step up efforts to seek grants and concessional financing for large infrastructure investment and other projects. Non-concessional loans should only be contracted for well-assessed, high-yield projects,” observes Naoyuki Shinohara, Deputy Managing Director and Acting Chair.

“A significant build-up of government reserves at the central bank will provide flexibility in budget execution and bolster Niger’s resilience to exogenous shocks.

“Important structural reforms are underway. Measures to strengthen budget execution, reduce the number of tax exemptions, and modernize tax and customs administration will help maintain fiscal stability. At the same time, steps to strengthen and develop the financial system and improve the business climate will promote private sector development and diversify the economy,” Shinohara added.

Niger is emerging from a prolonged period of social unrest and from military rule. A democratically-elected government came into power in April 2011. Building on the poverty reduction strategy, the government has adopted an ambitious development program.

Economic activity in recent years has been affected by large swings in agricultural production. Following a year of serious food shortages, economic growth recovered quickly in late 2010, driven by an excellent harvest and the expansion of services related to agriculture.

The authorities’ medium-term policy framework is based on a favorable growth outlook driven mainly by the oil and mining sectors. With the startup of a new petroleum project, GDP is projected to expand by13.4% in real terms in 2012. Investments in a large new uranium mine and the development of the petroleum sector should sustain economic activity in the years after 2012

Niger’s medium-term prospects are nevertheless subject to various risks. The country is vulnerable to exogenous shocks, including recurrent, weather-related food crises and fluctuations in commodity prices. The deteriorating security situation in the region is another factor adding to Niger’s vulnerabilities.

Medium-term fiscal policy will aim at maintaining debt sustainability while creating room for increased development spending. At the same time, the objective to strengthen government cash balances to increase the resilience of the budget to unexpected shocks. In light of these objectives and the current projections for external donor aid, the authorities intend to keep the basic fiscal deficit below 1.5 percent of GDP during the program period.

The government is committed to further strengthening public oversight of the natural resources sector in 2012 through the Inter-ministerial Committee for natural resources assessment, which will ensure appropriate information flows and coordination between government representatives in each natural resource company. In addition, the government intends to undertake a study on its overall strategy and policy in the petroleum and mining sector, including the policy to maximize the government’s petroleum resources and the structure of government oversight in that sector. This study is to be completed by end-December 2012.

A key objective for the medium term will be to bring the Investment Code into line with best practices. In collaboration with the World Bank, the authorities are planning to undertake a comprehensive review of the Code in 2012.

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