Kenya has received $2.34 billion (KES255 billion) three-year financing deal from the IMF to support the country’s Covid-19 response measures as well as cushion the nation’s debt vulnerabilities.
Approval of the loan under the IMF’s Extended Credit Facility and Extended Fund Facility (ECF/EFF) enables immediate disbursement of about $307.5 million for Kenya’s budget support, adding to $739 million that the country received in May last year, the Fund said in a statement.
“Kenya was hit hard at the onset by the Covid-19 pandemic. With a forceful policy response, the economy has been picking up heading into 2021 after likely posting a slight contraction of 0.1 per cent in 2020. Even with this recovery, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed,” the IMF statement added.
The Coronavirus pandemic has seen revenue collections contract in Kenya at a time when the country is also seeing a number debt repayments fall due.
The Fund noted that whereas the country’s debt remains sustainable, there remains a high risk of debt distress. To address the debt distress, IMF said, Kenya has taken action to hold the fiscal deficit and debt ratios to 8.7 per cent and 70.4 per cent of the Gross Domestic Product, respectively, this fiscal year.
Further, support from the G-20 under the Debt Service Suspension Initiative and development partners will contribute to closing the financing gap in 2021 along with financing from capital markets, noted the IMF.
The Fund’s initiative seeks to reduce Kenya’s debt vulnerabilities through a multi-year fiscal consolidation effort centered on raising tax revenues, controlling government spending, while also safeguarding resources to protect vulnerable groups.
The plan also seeks to advance the structural reform and governance agenda, including by addressing weaknesses in some state-owned enterprises (SOEs) and strengthening transparency and accountability by enhancing the fight against corruption.
The initiative also seeks to buffer the monetary policy framework and support financial stability. Against the backdrop of uncertainty due to the pandemic, the program incorporates flexibility, including by recognizing near-term challenges related to tax yields in the current stressed economic environment and likely contingent liabilities from the SOE segment.
“The program supported by EFF/ECF arrangements with the Fund provides a strong signal of support and confidence. It is also subject to notable risks, including from uncertainty about the path of the pandemic,” said IMF Deputy Managing Director and Acting Chair Antoinette Sayeh, adding: “the Kenyan authorities have demonstrated strong commitment to fiscal reforms during this unprecedented global shock, and Kenya’s medium-term prospects remain positive”.