IMF disburses Sh55 billion to Kenya, lauds CBK’s fiscal stance
The International Monetary Fund (IMF) has okayed the disbursement of Kes55 billion ($447.4 million) fresh loan to Kenya for budget support in the current financial year.
The latest instalment is the fourth tranche of a wider Kes288 billion ($2.34 billion) 38-month loan credit support programme that was agreed on in February last year.
The IMF said Kenya’s economy remains resilient against a challenging global backdrop and is projected to grow 5.3 percent this year.
“The economy has performed well amid slowing global growth, tighter financing conditions, and volatile commodity prices, while the continuing drought has increased food insecurity, and climate-related risks pose ongoing challenges,” Ms Antoinette Sayeh, Deputy Managing Director and Acting Chair, said.
“Strong performance of tax revenues supported resilience and cushioned the initial impact of global shocks on households and businesses, and the new administration’s elimination of petrol subsidies and plans for significant reprioritization of expenditure to keep the fiscal deficit below the budgeted level are commendable,” she added.
Latest data show Kenya’s inflation increased past the Central Bank of Kenya’s (CBK) target band in June and is expected to peak early next year largely due to high food and fuel prices.
Read also: IMF lauds Kenya for dropping fuel subsidy, readies Sh53 billion new loan
The IMF said CBK’s tightening monetary policy stance would limit second-round effects and keep inflationary expectations well-anchored while supporting external adjustment.
Kenya’s Central Bank has raised the benchmark lending rate by a cumulative 175 basis points this year.
“The exchange rate should function as a shock absorber, supported by a well-functioning interbank FX market, with forex interventions (sales) limited to addressing excessive volatility. Continued monitoring of the banking system is also important,” noted Ms Sayeh.
Despite double-digit export growth, the country’s current account is expected to widen on higher global oil prices in 2022, the global lender said in an update.
Downside risks predominate in the near term, while Kenya’s medium-term outlook remains favorable although climate-related risks are elevated, the IMF explained.
With progress on fiscal consolidation, public debt has begun leveling off. Taxes performed strongly in FY2021/22, while spending was compressed on shortfalls in external commercial financing, leading to an overperformance of 1.7 percent of GDP in the primary deficit.
However, obligations carried over from last fiscal year and an increase in unbudgeted spending in early FY2022/23 increased pressures on the budget. The new administration of President William Ruto has reasserted Kenya’s commitment to fiscal consolidation, targeting a lower overall fiscal deficit than the original budget.