IMF optimistic economy will meet growth target

PHOTO / FILE Mr Domenico Fanizza. 

In Summary

• Inflation climbed to a 15-month high in September reaching 8.29 per cent as goods that were previously VAT exempt were roped into the bracket
• The mission said the Westgate terrorist attack has not had significant effects on the economy even in the short term

By CHARLES WOKABI
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A resurgence in the agricultural sector in the second half of the year and increased public spending are expected to drive the country’s economic growth to achieve the government’s target of six per cent.

In an interview with the Sunday Nation, International Monetary Fund country representative Ragnar Gudmundsson said the economy will start reaping the benefits of rainfall received through the year in the third and fourth quarters, triggering a surge in domestic consumption.

To hit the annual growth target, Mr Gudmundsson said, the country’s economic progression must remain in the range of 6 to 6.5 per cent in the last two quarters.

“This is realistic given that the agriculture sector—the backbone of Kenya’s economy—is expected to rebound. Plus with the new government now settled in office, the economy is bound to benefit from increased public spending as the new administration rolls out development projects,” he said.

CONSUMPTION

Growth, as has been the case in the recent past, according to the Bretton Woods institution, will generally be driven by increased domestic consumption and continually improving domestic systems as the middle class expands.

Separately, Domenico Fanizza, who is leading an IMF mission to Nairobi, on Wednesday said the recent spike in inflation should not be a major concern for the well-being of the economy, terming it as a one-off reaction to the implementation of the VAT Act that triggered a 16 per cent increase in the cost of various good and services.

Inflation climbed to a 15-month high in September reaching 8.29 per cent as goods that were previously VAT exempt were roped into the bracket. The IMF mission is in the country to conduct the sixth and last review of a three-year extended credit facility arrangement approved in January 2011 to help the government roll out economic reforms in the country.

Mr Fanizza said reforms in the tax system, particularly the implementation of the VAT Act, will yield results. 

“It means companies do not have to wait for refunds from the taxman thereby enjoying better cash flows so they are not forced to take loans to fund petty cash needs,” he said.

The mission said the Westgate terrorist attack has not had significant effects on the economy even in the short term.