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IMF sees Kenyan economy growing 5.9 Pct in 2013/2014

12 December 2013, 12:57

Nairobi -  Kenya's economy will grow by 5.9 percent this fiscal year before accelerating to 6.3 percent in 2014/15, helped by improved tax collection and credit growth, the International Monetary Fund said on Thursday.

However the IMF cautioned that any renewed political uncertainty might hamper growth and deter capital inflows, while the higher-than-expected cost of a newly devolved government could reverse gains in controlling the fiscal deficit.

"Buoyant tax collections and accelerating credit growth to the private sector, particularly in the service and construction sectors, point to strong domestic activity with growth likely to get close to 6 percent in 2013/14," the IMF said in a statement.

It cut its estimate for the July-June fiscal year 2012/13 to 5.1 percent from 5.3 percent.

The IMF's forecast follows the World Bank's cut to its growth forecast for this calendar year and next to around 5 percent. The World Bank cited low government spending and high interest rates charged by commercial banks.

Tighter monetary conditions following a jump in inflation after revisions to the VAT tax would help anchor inflationary expectations, the IMF said. Inflation eased to 7.36 percent in November, just inside its 2.5-7.5 percent target range.

"Looking forward, the Central Bank of Kenya should not lower the Central Bank Rate until inflation gets closer to the lower bound of its target range," the IMF said.

The Washington-based body also recommended Kenya gradually continue accumulating foreign exchange reserves until they cover 4.5 months of projected exports. Kenya's hard currency reserves currently amount to 4.17 months of import cover.

Kenya's current account deficit was projected to narrow to 8.3 percent of GDP in 2013/14 from around 10 percent last year, the IMF said, leaving it able to better cope with external shocks.

- Reuters


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