IMF to release Sh9.5bn forex aid on sound economic reforms

The Central Bank of Kenya reported a Sh1.9 billion operating deficit for the period ended June this year. FILE  NATION MEDIA GROUP

By GEOFFREY IRUNGU

The International Monetary Fund (IMF) could release Sh9.5 billion foreign exchange aid to Kenya by December after reviewing its economic reforms in the past three weeks.

In a press statement released after the conclusion of the consultation with government officials, IMF said the Central Bank of Kenya (CBK) should manage monetary affairs in a manner that ensures low inflation, especially after the implementation of the Value Added Tax (VAT) Act.

The Treasury is expected to improve the programme-based budgeting method that it began in the 2013/14 fiscal year. The budget is presented in a way that shows the objectives expected to be met, the outputs as well as providing for monitoring and evaluation of the implementation.

The 2013/14 Budget Estimates document presented to the public through the new method left more questions than answers, necessitating further refinement. The transparency in the document was even lower than in the previous line-based budgeting.

The IMF also expects that the Treasury will publish regulations to effect the Public Financial Management Act passed last year.

“The CBK should continue to aim at anchoring expectations of low inflation. Recent price pressures reflect the one-off impact of removing VAT exemptions, and inflation should fall back within its target range by early 2014,” said the IMF statement.

Prices rose last month after the implementation of the new VAT Act began. Overall inflation stood at 8.3 per cent, up from 6.7 per cent in the previous month.

But IMF hailed the new law saying it would increase administrative efficiency, bolster revenue collection, and create resources for priority social and development outlays.

The IMF hinted that the government should work towards reducing the already huge public wage bill estimated to be at 13 per cent of the gross domestic product against global best practice of a maximum of seven per cent.

“Scarce public resources need to be used well, underscoring the importance of containing pressures on the wage bill, finalising implementing regulations for the Public Financial Management Act, and enhancing the quality of programme-based budgeting based on the priorities of the Second Medium Term Plan of Vision 2030,” said the IMF.