President Kibaki has led a crackdown on corruption

Their upbeat assessment follows the first visit to the African country in two years by the head of the International Monetary Fund.

Although he stopped short of giving a firm date for the resumption of aid, IMF managing director Horst Koehler said he had a "good feeling" about the way the talks had gone.

"A very close relationship has developed between the fund and the Kenyan government," he added.

Corruption

The hope in Nairobi is that the IMF will announce the release of $200m (�123m) in funds, as part of a three year programme, in September.

Such a move would open the gates for aid from other donors, including the World Bank.

Both the IMF and the World Bank froze aid to Kenya in late 2000, after the previous government of then-President Daniel arap Moi's Kanu party ditched efforts to fight corruption.

Mr Koehler praised the steps taken by the recently elected government of President Mwai Kibaki to crackdown on corruption.

'Powerhouse'

He also expressed optimism for Kenya's economic outlook, even if growth remains sluggish.

He said the East African country could become a job creation "powerhouse" on the continent.

"Kenya, I do think, has the potential for strong growth, and for me strong growth is not a question of 2 or 3%," he said.

"It is a question of 5, 6 or 7%."

Sluggish growth

In its annual report on Kenya's economy, published earlier this week, the IMF said Kenya had performed under its potential in recent years.

As a result, it had a lower per capita gross domestic product (GDP) than a decade ago.

The fund estimated the Kenyan economy grew 1.2% in 2002, the same as in the previous year.

Inflation remained in check last year at 2% after a faster 5.8% in 2001.

Growing deficit

Apart from continuing the fight against corruption, the chief priority was to push ahead with a comprehensive economic programme "without interruption".

It also urged:

• Greater fiscal transparency

• Action to cut government debts

• Tax reforms to boost revenue

• Greater emphasis on the IMF's poverty reduction strategy

• A "bold" privatization programme, with the government getting out of the ownership of commercial banks

• Strengthened bank supervision

The report also warned spending is likely to be substantially higher than budgeted for, because of the increase in housing allowances for teachers and free primary education.

As a result, Kenya's deficit will grow sharply, especially as the country's privatisation programme is not providing as much revenue as predicted.