VII. KENYA: RELATIONS WITH THE FUND
(As of October 31, 2009)
I. Membership Status: Joined February 3, 1964; Article VIII.
II. General Resources Account:
|SDR million||Percent of quota|
|Fund holdings of currency||258.52||95.25|
|Reserve position in Fund||12.89||4.75|
III. SDR Department:
|SDR million||Percent of allocation|
|Net cumulative allocation||259.65||100.00|
IV. Outstanding Purchases and Loans:
|SDR million||Percent of quota|
|Poverty Reduction and Growth Facility|
|ESF RAC Loan||135.70||50.00|
V. Latest Financial Arrangements:
|Type||Date||Date||(SDR Million)||(SDR Million)|
The last three-year PRGF arrangement was approved on November 21, 2003, in the amount of SDR 175 million. Access was augmented to SDR 225 million at the time of the first review on December 20, 2004, to address the impact of a drought and higher oil prices. In light of a balance of payments improvement and at the request of the authorities, access was reduced to SDR 150 million at the time of the second review. The arrangement expired on November 20, 2007. In May 2009, the Executive Board approved the disbursement of SDR135.7 under the RAC-ESF to address the impact of exogenous shocks and the balance of payments gap.
VI. Projected Obligations to Fund
(SDR million; based on existing use of resources and present holdings of SDRs):
VII. Implementation of HIPC Initiative: Not Applicable
VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable
IX. Safeguards Assessments
An update safeguards assessment of the Central Bank of Kenya (CBK) took place in Spring 2009 with respect to the authorities request for a disbursement under the Rapid-Access Component of the Exogenous Shocks Facility (ESF). The update assessment found increased safeguards risk at the CBK since the 2005 assessment. The report noted that deficiencies found in recent external audits and non-compliance with the benchmark financial reporting framework confirmed that audit oversight is not yet fully effective, and that it has impaired external audit and financial reporting. Steps are being taken by the CBK and the external auditor to strengthen the ongoing 2009 external audit process.
X. Exchange Arrangements
Kenya’s currency is the shilling, which floats against other currencies. The official exchange rate, which is set at the previous day’s average market rate, applies only to government and government-guaranteed external debt-service payments and to government imports for which there is a specific budget allocation. The exchange rate regime is a managed float, in which the U.S. dollar is the principal intervention currency. Kenya has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions, other than restrictions notified to the Fund under Decision No. 144 (52/51). On November 20, 2009, the exchange rate was K Sh 74.5 =US$1.00.
XI. Article IV Consultations
Upon expiration of the PRGF program in November 2007, Kenya has now reverted back to a standard 12-month cycle for Article IV consultations. The last Article IV consultation was concluded on September 10, 2008 (EBS/08/339).
XII. FSAP Participation
A joint IMF-World Bank Financial Sector Assessment Program (FSAP) Update mission took place in Nairobi in September 2009. The staff report on the Financial Sector Stability Assessment (FSSA) is issued to the Executive Board concurrently with the 2009 Article IV Consultation Staff Report.
XIII. Technical Assistance
|Department||Purpose||Time of Delivery|
|STA||ROSC Mission||January 2005|
|MFD||Monetary Framework, Monetary Operations, and Banking Supervision||October 2005|
|FAD||Revenue Administration||November 2005|
|FAD||AFRITAC East Semi-Autonomous Agencies and EBFs/Fiscal Reporting Mission||March 2006|
|FAD||HQ Mission: Strengthening the Budget and Reporting System||August 2006|
|FAD||AFRITAC East TA: Revision of Public Finance Management Act||October/November 2006|
|MCM||AFRITAC East TA: Review of Risk-Based Supervision Manual||November/December 2006|
|MCM||Monetary Operations TA||January 2007|
|STA||External Debt Statistics Workshop||February / March 2007|
|FAD||AFRITAC East TA: Customs Administration||July 2007|
|FAD||Fiscal ROSC||July 2007|
|MCM||Payment Systems||February 2008|
|STA||Consumer Price Statistics||March 2008|
|MCM||Monetary Operations/Banking||April 2008|
|STA||National Accounts||April 2008|
|FAD||AFRITAC East TA: Budget||May 2008|
|STA/MCM||Financial Soundness Indicators||June 2008|
|MCM||Bond-Pricing Techniques Workshop||July 2008|
|FAD||AFRITAC East TA: Regional PFM Advisor: Budget and Tax review||August 2008|
|FAD||AFRITAC East TA: Customs Administration|
|MCM||Payment Systems||August 2008|
|STA||AFRITAC East TA: Monetary and Financial Statistics||August 2008|
|FAD||Tax Administration Workshop||November 2008|
|FAD||PFM and Fiscal Decentralization||November 2008|
|STA||Reweighing and Rebasing of CPI||December 2008|
|STA||Producer Price Index compilation||December 2008|
|MCM||Risk based Supervision||January 2009|
|MCM||Capital Market Regulation and Supervision||March 2008|
|FAD||Several missions on fiscal decentralization, customs administration, and public finance management||2009-2010|
|LEG||Missions on Anti-Money Laundering legislation and the Banking Law||2010|
|MCM||Several mission on monetary operations, bank supervision, payments system and capital market development||2009-2010|
|STA||Several missions on national accounts, CPI, and external sector statistics||2009-2010|
XIV. Resident Representative
The Fund has had a resident representative in Kenya since December 1993. Mr. W. Scott Rogers is the current Senior Resident Representative.
VIII. Kenya: Joint Bank- Fund Management Action Plan 2009–10
|Title||Products/Activity||Provisional timing of mission (if relevant)||Expected delivery date|
|I. Mutual Information on Relevant Work Program|
|Bank Work Program in the next 12 months||A. Strategy and Analytical Work|
|Staff Advisory Note on the Medium-Term (2008-12) Strategy for National Transformation||No mission needed|
|Agricultural Policy Review||To be decided||Completed|
|Parliament’s Role in Governance||Completed|
|Police Oversight Mechanisms||Completed|
|Economic Update (half-yearly)||December 2009|
|Public Expenditure Review||March 2010|
|B. Country Assistance Strategy||September 2009||December 2009|
|C. Ongoing and New Projects|
|Several projects on public sector reforms including legal and judicial, capacity building, agriculture, natural resource management, transportation, energy, urban services, small and medium scale enterprises, education and health (including HIV/AIDS)||Several||Ongoing|
|Fund Work Program in the next||A. Missions|
|12 months||Article IV Consultation||October 2009||December 2009|
|Financial Sector Assessment Program (FSAP) Update||October 2009||December 2009|
|Staff Visit to discuss a possible IMF-supported program||April 2010||June 2010|
|B. Analytical Work|
|2009 Article IV Mission Analytical Papers:(i) Spillover Effects of the Global Crisis; (ii) Global Financial Crisis and Adjustment to Shocks in Kenya, Tanzania and Uganda - A Balance Sheet Perspective; (iii) Reserve Adequacy in East African||October 2009||December 2009|
|Fund Work Program in the next||AFR-MCM Project on EAC financial market integration||No mission needed||Ongoing|
|12 months continued||Kenya’s Retail Price Responses to World Oil Prices||No mission needed||February 2010|
|C. Technical Assistance|
|Anti Money Laundering Diagnostic Mission||February 2010||April 2010|
|Central Banking Law assessment|
|Fiscal sector issues|
|Customs Administration (several missions)||October 2009||July 2010|
|Fiscal Decentralization (several missions)||October 2009||July 2010|
|Public Finance Management|
|Tax Review Policy|
|MTEF and program budgeting||December2009|
|Monetary and financial sector issues|
|Payments system regulatory and oversight issues||March 2009||Completed|
|Capital markets / securities supervision||July 2009||September 2009|
|Risk based supervision||February 2009||Completed|
|Development of Primary and Secondary markets|
|Nonbank money transfer system||February 2009||Completed|
|CPI Statistics Mission||May 2009||August 2009|
|National Accounts Statistics||October 2009||January 2010|
|Balance of Payments Statistics||February 2010||April 2010|
|II. Request for Work program Inputs (as needed)|
|No outstanding request|
|III. Agreement on Joint Products|
|Joint products||Public and External Debt Sustainability Analysis||April 2009||May 2009|
|Financial System Stability Assessment||September 2009||December 2009|
|Joint Staff Advisory Note (JSAN) on Medium Term Development Plan / Vision 2030||October 2009||December 2009|
IX. Kenya: Key Statistical Issues
Data provision has some shortcomings, but is broadly adequate for surveillance and program monitoring. Weaknesses in macroeconomic statistics reflect organizational and skill shortcomings, and inadequate resources. In line with the new Statistics Law, the government established the autonomous Kenya National Bureau of Statistics (KNBS) in 2007 to replace the Central Bureau of Statistics (CBS).
41. The Report on the Observance of Standards and Codes—Data Module (IMF Country Report No. 05/388) published on October 31, 2005 stated that methodological soundness is uneven across datasets and significant improvement is required in government finance statistics and national accounts. Accuracy and reliability do not receive adequate attention in any of the datasets, while accessibility of the disseminated macroeconomic statistics are adequate, except for the balance of payments statistics.
42. Kenya participates in the Fund’s General Data Dissemination System (GDDS) and the GDDS project for Anglophone Africa. Metadata and detailed plans for improving the data over the short and medium term are posted on the Fund’s Dissemination Standards Bulletin Board (DSBB). Kenya has received Fund technical assistance. Further assessment of capacity building requirements has been undertaken by the AFRITAC East Statistical Advisor.
43. Monetary, exchange rate, and some external data are published on a monthly and biannual basis by the KNBS in its Monthly Economic Review. Core financial data are also made available to the Fund on a regular basis. A detailed account of various sectoral activities and the corresponding statistical data are published annually by the KNBS in its Economic Survey.
44. Data quality has deteriorated significantly because of budgetary and staff constraints at the KNBS. GDP is believed to be significantly underestimated, as important and increasing parts of the economy, such as the informal sector, nonagriculture subsistence, horticulture, and self-employed professionals are not properly covered. An STA peripatetic advisor assisted the authorities in rebasing the national accounts estimates at constant 2001 prices and compiling institutional accounts for the general government sector. As a result, national accounts estimates for the years 1996–2005 in current and constant (2001) prices) have been published. Quarterly national accounts are being developed with the assistance of the AFRITAC East. Quarterly GDP estimates are now published.
Prices and production
6. In early 2002, the KNBS (then CBS) began publication of a new national CPI (covering 13 urban towns), with 1997 as reference year and outdated weights and basket of items derived from the 1993–94 Household Budget Survey (HBS). Indices are produced for lower and middle/upper income groups in Nairobi and other cities. The index is compiled and published on a timely basis. No producer, export, or import price indices are produced. In March 2008, a TA mission assisted the authorities in identifying the methodological issues relating to the measurement of inflation. The current methodology of aggregating prices at the elementary level was found to impart a substantial upward bias on CPI measurement. In line with STA recommendations, the KNBS released a revised series that is consistent with international best practices in November 2009. They plan to publish a new series in February 2010, with rebasing and reweighing of the CPI basket.
Government finance statistics (GFS)
7. The data ROSC mission emphasized a number of key areas in GFS compilation that should be improved, including: (i) migration to the GFSM 2001 methodology; (ii) broadening the coverage to include extrabudgetary and social security funds and report on a general government level; (iii) reconciliation of fiscal statistics from various sources to limit discrepancies; (iv) improve information on external financing, particularly on expenditure directly financed from abroad; (v) compilation and dissemination of monthly and quarterly budget execution data; and (vi) training of Ministry of Finance (MOF) staff in the GFS methodology.
8. Since the beginning of FY 2005/06, Kenya has followed a new economic classification of the budget based on GFSM 2001 (with assistance from the AFRITAC-East). However, serious delays have emerged in reporting, reflecting difficulties in establishing budget execution and accounting systems consistent with the new classification. To ensure timely reconciliation and monitoring of budget execution, the existing systems would need to be promptly upgraded and made operational. Progress has been made toward moving to the IFMIS. There are still important gaps in ensuring proper reconciliation of fiscal data from different sources, including from various units within the MOF. The discrepancies in budget outturn data (between deficit/surplus and financing) remain significant, and the recording of external financing and expenditure directly financed from abroad is still an important area for improvement. The government has taken some steps to initiate a project to rationalize/eliminate extrabudgetary funds, but the progress in compiling consolidated fiscal statistics has remained limited.
9. The country reports data to STA for the budgetary central government for inclusion in the GFS Yearbook, albeit with a significant lag—the last data reported were for the year ending June 2005. The KNBS compiles the aggregate annual GFS revenue and expenditure data for the budgetary central government based on detailed data in the reports of the Controller and Auditor General. The data submitted for publication in the 2007 GFS Yearbook was reported in GFSM 2001 format, using bridge tables developed by the technical assistance missions. The recent steps taken in the migration to GFSM 2001 may help reduce the significant differences between KNBS data and the data compiled by the MOF and reported to AFR for surveillance and program monitoring purposes. Monthly and quarterly data are regularly reported for inclusion in the IFS.
10. Progress has been shown in the implementation of the Monetary and Financial Statistics Manual (MFSM) and development of the standardized report forms (SRFs). The authorities submitted SRF test data; however, there has not been further progress. In March 2007, a STA mission established the standardized report form for the data on the central bank; reviewed and revised the reporting form and compilation notes for the other depository corporations (ODCs) in line with MFSM data requirements; and identified the coverage of the ODC subsector. The mission found misclassification of a number of central government deposits as private sector deposits. A major issue for future work relates to the expansion of the coverage of the ODCs to include the Savings and Credit Cooperatives (SACCOS). As of end-March, 2007, there were 3,800 SACCOs, accounting for about 30percent of the total deposits of the banking system. When implemented, a new bill providing for increased supervision over SACCOs would generate data as part of the supervisory function. A follow-up mission in June 2007 conducted a workshop for officials of ODCs and established a system for reporting Form 1SR to the IMF. The new Standardized Reporting System for reporting ODCs’ data to the central bank was also finalized. There is no ongoing TA, but, if needed, Kenya can benefit from participating in the monetary module of the next phase DFID project that will commence in 2010.
External sector statistics
11. The KNBS compiles annual balance of payments statistics in Kenya shillings that are regularly reported to STA, although with considerable delay. In addition, the Central Bank of Kenya (CBK) compiles a complete set of annual balance of payments statistics in U.S. dollars, which are reported to AFR and used for programming and surveillance purposes. The two datasets are not entirely consistent, and Fund staff has strongly encouraged the authorities to reconcile them. More recently, the CBK also started to compile and publish quarterly balance of payments estimates.
12. Although the overall quality of trade data may be reasonably good, data for other current account and many financial account transactions are rather weak. Following the liberalization of the exchange system in 1993–94, gaps emerged in coverage. The compilation system (other than that used for compiling customs statistics), used since 1994, relies on reports from domestic banks and may result in a substantial under-recording of current earnings, including tourism receipts; investment flows of the private sector; as well as transactions that are settled via accounts held abroad.
13. Present estimates of direct and portfolio investment are believed to be substantially understated. The large positive errors and omissions in the central bank data that have emerged in the balance of payments since 1994 give rise to uncertainties as to the potential size of external obligations. The MOF compiles data covering public and publicly guaranteed external debt obligations to official and commercial creditors. This database does not take into account nonresident purchases of the government’s domestic currency-denominated debt securities. In developing the loan-by-loan debt sustainability analysis (DSA) in 2002, Fund and World Bank staff identified several significant debt data problems that have been addressed by the authorities. Efforts to further strengthen external debt management and its integration in the budget formulation and expenditure management systems continue. In its June 2009 Medium-term Debt Strategy, the government expressed its commitment to strengthening capacity. Also, it indicated that during the 2009/10 financial year, both the domestic and external debt databases at the CBK and Ministry of Finance will be linked through the fiber-optic cable network.
14. To help address these issues, in 2006 a technical assistance mission recommended introducing a foreign investment survey, enhancing the foreign exchange statistics survey, and using a common methodology, including for estimations, in the use of available data in the KNBS and CBK. In 2009, a DFID funded enterprise survey failed to materialize. There are plans to conduct a foreign investment survey in 2010, which planned DFID-funded and STA external sector missions will support.
15. Kenya does not report international investment position statistics to STA.
X. Kenya. Table of Common Indicators Required for Surveillance
(As of November 10, 2009)
|observation||Data6||Reporting6||publication6||Data Quality—Methodological soundness8||Data Quality—Accuracy and reliability9|
|International Reserve Assets and Reserve Liabilities of the Monetary Authorities1||11/10/09||11/09/06||D||D||M|
|Reserve/Base Money||11/10/09||11/09/06||D||D||M||LO, LO, LO, LO||LO, LO, O, NO|
|Central Bank Balance Sheet||11/10/09||11/09/06||D||D||M|
|Consolidated Balance Sheet of the Banking System||9/30/09||10/15/09||M||M||M|
|Consumer Price Index||10/31/09||11/10/09||M||M||M|
|Revenue, Expenditure, Balance and Composition of Financing3—General Government4||6/30/2009||10/09||NA||NA||NA||LNO, LNO, LNO, LO||LNO, LO, LO, LO, NO|
|Revenue, Expenditure, Balance and Composition of. Financing3—Central Government||6/30/2009||10/09||Q||I||Q|
|Stocks of Central Government and Central Government Guaranteed Debt5||6/30/2009||10/09||Q||Q||Q|
|External Current Account Balance||6/30/2009||10/09||M||A||A||O, LO, O, LO||LNO, LO, LO, LO, LO|
|Exports and Imports of Goods and Services||6/30/2009||10/09||M||Q||A|
|GDP/GNP||6/30/2009||10/09||M||A||A||O, LNO, LNO, LO||LNO, LO, LNO, LO, LNO|
|Gross External Debt||6/30/2009||10/09||M||Q||Q|