IMF revises Kenya's GDP growth to 5.6 pct due to low spending

The International Monetary Fund (IMF) has cut Kenya's economic growth to 5.6 percent in 2015 from 6.5 percent it had projected due to delays in planned road infrastructure spending, weaker tourism receipts and volatile external capital flows.

The IMF mission, which has been in the country since Dec. 2 to review economic development, said the growth would be driven by public infrastructure spending, buoyant credit growth, and strong consumer demand.

"Kenya's growing integration in global financial markets has created significant opportunities, but has also made the country more exposed to global market developments," IMF team led by Vitaliy Kramarenko said in a statement received on Thursday.

Kramarenko said although the external current account deficit is projected to decline to 8.5 percent of Gross Domestic Product (GDP) in 2015 (from 10.4 percent in 2014), it remains high and requires significant foreign capital inflows to be financed.

"Despite significant volatility of external capital flows in 2015, gross international reserves remain adequate at 4 months of projected 2016 imports," he added.

The lender had forecast that the GDP would grow by 6.9 percent earlier in the year, citing spending on the standard gauge railway (SGR) and other infrastructure projects as a major driver.

However, the IMF said the economy is projected to continue to expand robustly, although at a slower-than-projected pace.

It said inflation rose to 7.3 percent in November, close to the upper end of the authorities' target range.

However, Kramarenko said real GDP growth is projected to accelerate to about 6 percent in 2016 on account of the continuation of strong investment momentum, effects of good rain on agriculture, and a pick-up in tourism following removal of travel advisories from major tourism source markets.

During the review, Kramarenko said discussions focused on the appropriate policy mix in support of the authorities' objective of fostering inclusive, investment-driven growth while maintaining macroeconomic stability and debt sustainability.

"There was broad agreement that the macroeconomic policies will need to be prudent, in order to contain inflation within the target range, maintain public debt on a sustainable path, and further reduce the current account deficit," he said.

The East African nation currently has access to 688.3 million U.S. dollars precautionary loan from the IMF, but the Treasury has said it will only draw the cash if a major depreciation of the shilling occurs or is set to occur. Enditem