International Monetary Fund Managing Director Christine Lagarde will be in Kenya for the next few days to discuss the country’s economic future.
In a speech welcoming her on Monday, Kenyan President Uhuru Kenyatta expressed his hopes for the country’s economic future:
“I believe that it is now time for us to shift gear and think of a partnership that will propel Kenya beyond a frontier economy to a truly middle-income country,” he said, adding that he hoped to reach this goal by 2030.
Lagarde, in an address to the Kenya Private Sector Alliance Forum in Nairobi on Monday, applauded the country’s ambitions, but warned about pitfalls the coming years. In order to reach their goals, she cautioned leaders that the country is vulnerable to volatile to global economic forces – particularly a slowdown in emerging markets, which once bolstered the region’s growth. She also advised Kenyan officials to promote fiscal discipline and encourage foreign investment in order to maintain the country’s high economic growth rate, and contribute to sub-Saharan development.
“A set of bold economic reforms have laid the foundations to lift the economy to middle-income status within the next decade – if Kenya maintains the reform momentum,” she said.
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The IMF has predicted that sub-Saharan Africa will grow at a rate of nearly 6 percent in 2014. Kenya grew by 5 percent in 2013.
These growth rates were spurred by emerging market demand, which also helped the region withstand the global financial crisis. But as these markets slow down and advanced economies recover, Kenya and its neighbors will be vulnerable to new volatility, Lagarde warned.
“The global recovery that is under way remains uneven and subdued, and its underlying dynamics are shifting,” she said. In October, the IMF revised its prediction for emerging market growth for 2013 from 4.9 percent to 4.5 percent, and the global growth rate forecast from 3.1 to 2.9 percent.
Countries such as Kenya are particularly susceptible because of their greater financial integration with the global economy.
To help weather the coming volatility, Lagarde urged Kenyan officials to maintain and improve fiscal discipline at home. She noted that they must be sure to use their wealth of natural resources wisely, not spend beyond resources and promote foreign trade to help fill infrastructure gaps.
Kenya has made great strides in this respect already. More than 70 percent of Kenyans have access to financial services – the highest rate of all countries in the region.
Lagarde also emphasized the importance of devolving government power from central to local governments, in order to maintain these standards.
“It is imperative that devolution is done right,” she said, adding that the Kenyan government should be as transparent as possible.
The IMF chief added that it is “crucial to ensure that every region gets to benefit from improved economic conditions.”