Rates Cap Threatens SME Growth in Kenya – IMF

Google+ Pinterest LinkedIn Tumblr +

The International Monetary Fund (IMF) says the law capping deposit and lending rates introduced in Kenya in September 2016 is limiting access to financing by small and medium-sized enterprises, threatening the financial inclusion milestones achieved in the country in recent years.

“Interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth,” the IMF added.

A team from the IMF was in Kenya for consultations and to hold discussions on a Stand-By Arrangement and Credit Facility that Kenyan authorities indicated they would continue treating as precautionary.

Kenya’s economy continues to perform well with real GDP increasing from 5.6 per cent in 2015 to 5.9 per cent in the first three quarters of 2016 buoyed by public investment speeding, favourable weather in the first half of 2016 and improved tourism.

The country’s current account deficit, on a 12-month basis, narrowed to 5.5 per cent of GDP in 2016 from 6.8 percent in 2015, reflecting lower oil prices, improved tea and horticulture exports and increased remittance inflows.

According to the Central Bank of Kenya, inward remittances to Kenya stood at a record value of just under $161 million in November 2016.

The exchange rate has remained stable and foreign exchange reserves have risen to $7.8 billion- equal to 5.1 months of import cover- as of end March 2017 and the banking system has remained stable.

The IMF team met with Henry Rotich, Cabinet Secretary, National Treasury;  Central Bank of Kenya (CBK); and senior government, Ministry and CBK officials.

They discussed macroeconomic policies and structural reforms seeking to ensure the sustainability of investment-driven, inclusive growth in the country.

The authorities revealed plans to accelerate reforms to mobilize revenue to support appropriate delivery of government services at the national and county levels; increase the efficiency, transparency and accountability of public spending; safeguard financial stability by enhancing prudential regulation and supervision; and deepen structural and governance reforms to improve the business environment.


About Author

Leave A Reply