In December last year, the International Monetary Fund (IMF) approved the final disbursement of $110.2 million to Kenya, concluding a three-year arrangement under the Extended Credit Facility.
In total the Bretton Wood institution had injected $748.4 million into the East African nation.
The government of Kenya and executive board of the International Monetary Fund are expected to hold discussions during the forthcoming Article IV consultation meeting, tentatively planned for March 2014, to assess the status of Kenya’s economy. Kenya will be hoping to craft a new deal with the IMF.
At the MindSpeak, a Nairobi-based business club monthly forum, Christine Largarde intimated that over $1 billion had been approved by the IMF board as a credit extension to Kenya for the next three years. She added that the IMF was pushing the government to look at ways of containing its rising wage bill too.
On the negotiating table will be a request from Nairobi for additional balance of payments support, cash to cut down its ballooning public sector wage bill through retrenchments, early retirement packages and dismissals.
Nairobi will also be sitting down with the IMF at a time when the Kenya Government is increasingly looking East to China and Asian Tigers to finance most of its big ticket projects, including the Jomo Kenyatta International Airport Green Terminal, Lamu Port and the standard gauge railway. Questions linger in diplomatic circles as to why the West is shifting its attention to socialist Tanzania at a time when the influence of Washington or Brussels is waning in Kenya.
“There is bound to be intense discussions around how to cut down the civil service numbers, which is an expensive exercise that also has social and political overtones. The IMF will have to provide support for any redundancy program,” Shaw, an economist in Nairobi told AFK Insider.
Also under close scrutiny during the IMF mission negotiations will be how to ensure that financial discipline is instilled in the newly created county governments of Kenya with the implementation of Kenya’s new constitution promulgated in 2010.
“Although County Governments are barely nine months old, there is need to ensure prudent expenditure and discipline is put in place in compliance with the Public Finance Management Act,” said Shaw.
A first-quarter report, covering July to September 2013, authored by the controller of budget shows that out of all the 47 counties, only one set aside 30 percent of its budget for development spending. The rest have contravened the Public Finance Management Act 2012, with about 27 counties using up all their budget allocations on recurrent expenditure.
“The government is putting in place a final detailed request based on the broad agreements it has already secured with the IMF, including estimates for each sector and impact of the requests,” said Gerrishon Ikiara, University of Nairobi’s international economics scholar, in an AFKInsider interview.
Topping the priority list, according to Ikiara, will be how to deal with pressure from trade unions for salary increments. “We have to control the public wage bill failure to which the entire economy could be destabilized,” said Ikiara, who is associate director for the Institute of Diplomacy and International Studies, University of Nairobi.
While Kenya will be holding a begging bowl, it also has features on its cap and accolades from the IMF that will give it some comfort on the negotiating table.
The promising commercial prospect of oil discoveries and aquifers holding substantial water in Northern Kenya could have a huge impact on future generations, IMF said in a report completed on Nov. 18.
While the economic outlook remains bright with Kenya’s growth likely to hit 6 percent in 2013-2014, significant risks remain. The recent Westgate mall terrorist attack is expected to have an impact mostly on tourism, the insurance industry and big supermarket chains.
A deterioration in Kenya’s terms of trade is also expected this fiscal year given rising oil prices and a fall in tea prices – Kenya’s main export crop and FOREX earner.
“The main risks to Kenya’s macroeconomic stability continue to be domestic. Higher-than-expected devolution costs and possible overlaps of functions between the central and county levels could reverse recent gains in fiscal sustainability,” the IMF warns.
In a letter dated Nov. 15 to the IMF Managing Director Lagarde, the government committed to keeping inflation low and prices stable within target range by early 2014.
“We have begun devolving government functions to the newly established 47 counties. To ensure an orderly transition to devolved government, we are prioritizing implementation of the treasury single account at both national and county level to benefit from development partner assistance,” said Henry Rotich, national treasury cabinet secretary, in a correspondence with IMF.
The Salaries and Remuneration Commission is already working to contain pressures on the public sector wage bill. The commission plans to rationalize the salary scheme for all levels of government by June this year, to limit scope of ad hoc wage increases, in line with the Public Finance Management law.
The IMF had stressed the need for prompt implementation of the new legislation on public finance management and the draft value added tax law to ensure sound public expenditure management. All these pieces of legislation have since been passed into law; perhaps a clear pointer to clout and influence the Washington-based institution has on Nairobi.
Other IMF-driven laws that have seen light of day include the Public Finance Management Act, which is now instrumental in bringing sanity to management of public finances especially at the county government levels.
The last time the Kenya Government approached the IMF, it was seeking additional credit facilities after the economy was hit by high cost of food, severe drought in parts of the country and a volatile currency which came under speculative attack.
