IMF tells Kenya to bolster growth of private sector

International Monetary Fund (IMF) says that to cushion sub-Saharan Africa from effects of youth bulge, countries like Kenya must quickly bolster the growth of the private sector and spur economic growth. The proposal could be vital in also creating employment opportunities in the country even as the global lender seeks to foster job creation in the sub-Saharan region to cater for its expanding population.

In its “Regional Economic Outlook” report, access to finance has been flagged as one of the key reasons why the private sector continues to struggle despite it being a crucial sector in most low-income economies.

According to the Central Bank of Kenya (CBK) survey on market perception, access to finance by the private sector is expected to remain low in 2024 due to the high lending Rates by commercial banks. This is even after the regulator revised the rate downwards to 11.25 per cent in December this year after December 5, the Monetary Policy Committee (MPC) meeting.

The IMF proposes that financial institutions relook at their financial policies and make them fair enough in order to boost the ease of access to credit extensions by the sector. “The resulting tight financing constraints make the needed macroeconomic adjustment more difficult since gradualism becomes less feasible,” the report reads.

By improving the investment climate on the other hand, the IMF believes that foreign direct investments will increase. Kenya’s investment climate however, remains unfavorable due to tough business policies and unpredictable taxes by the government hence the need to be addressed. The country is currently grappling with high corruption cases impacting development projects and discouraging investments.

Additionally, developing local capital markets can increase the available financing by converting savings into investment capital; and fostering financial inclusion through the development of mobile banking, microfinance, and financial literacy would improve funding access to the predominantly Small and Medium Enterprises (SMEs).

Kenya currently is keen on leveraging on the mobile banking factor as more financial institutions continue to embrace technology to make the access to financial services seamless.

However, the access to “good” digital devices such as smart phones and digital financial literacy continues to be a barrier. Thus, the need for stakeholders to help address the matter A CBK report indicates that despite the country having marked a major milestone in digital uptake, the mobile banking area of focus continues to have slow traction.

“Mobile banking declined slightly from 34.4 per cent in 2021 to 31.2 percent in 2024, with urban usage at 45.5 percent and rural adoption rising to 23 percent,” the report reads. On the other hand, it highlighted that working on basic infrastructure is core as this helps the private sector cut costs on issues such as internet connectivity, transport and electricity which are vital for businesses.

Incomplete road projects, high electricity and internet data costs in the country have made business operations more difficult for the private sector thereby the need for the government to revise its tax policies and fast track development projects.