The International Monetary Fund on Monday trimmed its 2011 growth outlook for Kenya on Monday and backed further funds to boost the country's foreign exchange reserves to help tackle a widening balance of payments gap.
The Washington-based body gave the green light to a $250 million top-up to a $500 million extended credit facility, pending full board approval, and said Kenya's central bank should tighten monetary policy further to stem high inflation.
Domenico Fanizza, head of an IMF mission in the country, told a news conference economic growth for this year was now seen at 5.0 percent, down from the IMF's earlier estimate of 5.3 percent, and at 5.5 percent next year.
Policymakers in East Africa's biggest economy have this year struggled to tame rampant consumer inflation and defend the battered local shilling while maintaining a pro-growth strategy. The IMF said drought and power rationing had also weighed.
With the return of more favourable weather conditions, continued investments to boost the country's medium-term prospects, and continued efforts to ensure a smooth and effective implementation of the new constitution, economic expansion is expected to accelerate next year, Fanizza said.
Headline inflation was expected to ease to around 17 percent by end 2011, the IMF said. The year-on-year rate rose to 18.91 percent in October from 17.32 percent a month earlier.
There is need for substantial (monetary) tightening to reduce inflation, Fanizza said, adding that the pace of growth of credit to the private sector also needed to slow.
Fanizza said that once the shilling exchange rate stabilised, the central bank needed to replenish the country's international reserves to hit the medium term objective of 4 months of import cover.
Kenya's Monetary Policy Committee is due to meet on Tuesday to decide on its benchmark lending rate, which it raised to 11 percent from 7 percent in October.