Africa has embraced sound economic policies and even the political class has started to appreciate the importance of such policies, Kenya’s central bank governor said on Wednesday.
Although some economies in the 54-nation continent have recorded some of the fastest economic growth rates in recent years, critics say some policies need to be changed to deepen the growth and make it inclusive.
“Good policies are good for the economy, they are good for the people,” Patrick Njoroge told an investor forum in Nairobi that was organised by Renaissance Capital.
“There is a greater acceptance and indeed appreciation of that … There is no preaching by the IMF or what you call the Washington consensus. We are already converted in terms of solid policies.”
Kenya embraced a free market economy in the 1990s, opening up its capital markets to foreign investment without any restrictions. It also has a free-floating foreign exchange regime and a diversified economy that is underpinned by farm exports like tea and coffee, as well as tourism.
The International Monetary Fund has in the past gotten into confrontations with some African governments due to its policy prescriptions that were sometimes deemed as too painful, such as spending cuts and reduction of public wage bills.
Njoroge, who was a senior IMF adviser in Washington before taking his current job in 2015, said the growing appreciation of the need for good economic policies was spreading even to the ruling class, citing low fiscal deficits and central bank independence.
“Those are things they may not fully accept, but for the most part they understand that we need to pursue positive policies and indeed strong policies,” he said.
Kenya, where inflation expectations are well-anchored, was a good representation of what is happening on the continent, he said.
Year-on-year inflation stood at 5.0% last month, at the mid-point of the government’s preferred band of 2.5-7.5%.
He said the main threat to the outlook for inflation was the fluctuating price of oil, adding that policymakers had adequate tools and experience to deal with the threat.
Kenya’s shilling currency has been the most stable this year among its Sub-Saharan Africa peers and Njoroge attributed that to a drop in the current account deficit, which stands at 4.2% of GDP, down from 10.4% four years ago.
“We expect it to remain at about 5% of GDP … that is a stable thing and it can be completely financed by foreign flows, FDI, portfolio investments,” he said.
Kenya’s government has been criticised for imposing caps on commercial lending rates, leading to a squeeze on private sector credit growth, but Njoroge said those were temporary.
He said the government has moved to tighten its fiscal policy, after the appointment of a new, acting finance minister in July, which could lead to a dovish monetary policy stance given the need for rebalancing.
“They have even signalled that there will be significant expenditure cuts because they want to have a strong fiscal stance,” he said.
Last week, the Acting Finance Minister Ukur Yatani warned government ministries and departments to expect brutal cuts, as the government gets rid of unnecessary expenditure.