Summary:EXECUTIVE SUMMARY
Background: Kenya’s recent reforms have introduced a more comprehensive system
of checks and balances, including accountability and transparency in expenditure
control and management. In this context, the new government has taken decisive
steps towards devolution supported by a renovated institutional framework and solid
macroeconomic management. Fiscal policy has focused on sustainability, while
allowing for infrastructure investment in key sectors such as roads and power
generation, and expanding protection of the vulnerable population. Policies have laid
the ground for sustainable economic growth, with domestic and foreign investors
expanding their scale of operations in a market-friendly environment. Foreign
investment flows have risen and boosted the stock market, allowing for a sustained
accumulation of international reserves. Commercial prospects of oil discoveries are
promising, and the discovery of aquifers holding a potentially substantial supply of
water in Northern Kenya could have a huge impact on the lives of future generations.
Kenya leads the way in the process of regional integration, having become the second
largest African investor in other Sub-Saharan African countries, with a number of
regional banks rapidly expanding operations through the rest of Africa. Financial
institutions are moving ahead of schedule in adopted prudential guidelines issued by
the central bank in line with international best practices. The International Criminal
Court trial of President Kenyatta for crimes against the humanity has been postponed
until February 5, 2014. The impact of the September 21 terrorist attack has been
limited, so far circumscribed to the tourist sector.
Program: The Executive Board approved a three-year Extended Credit Facility (ECF)
program for Kenya on January 31, 2011 (120 percent of quota), which was augmented
on December 9, 2011, for a total of SDR 488.520 (180 percent of quota). All end-June
2013 quantitative targets were met. NDA and NFA were comfortably within the
program bounds. The authorities’ primary fiscal balance outcome was in line with the
program, and Priority social expenditure was above the program’s indicative target.
The structural benchmark on auditing of compliance with VAT obligations by 50 large
taxpayers before June 2013 was fulfilled, and the VAT Act was approved by the
Parliament and enacted by the President.
Staff views: The staff recommends completion of the review. The authorities have
consented to publication of the staff report and Letter of Intent and its attachments.
