The International Monetary Fund (IMF) have reached a deal to boost loans to Kenya by an extra $1.1 billion (Kes152 billion) and expand the Fund programme by another two years, a move that is bound to calm fears over the country’s ability to repay the Eurobond next year.
IMF agreed to give Kenya additional support under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements as well as open a new line of credit under the Resilience and Sustainability Facility (RSF) arrangement that will run for a 20 month period.
The additional resources bring total programme loans to $3.52 billion, funds which will ease Kenya’s debt payments and ease pressure on the shilling by providing dollar reserves which have declined to 3.5 month import cover.
This is the second time IMF is expanding Kenya’s debt facility after the 38-month IMF program signed in February 2021 was increased from $2.34 billion to $2.416 billion in December to cover external financing needs on droughts and challenging global markets.
Kenya also got a boost from the World Bank which enhanced Kenya’s loan kitty by Kes32.3 billion ($250 million) bringing the expected disbursement from its Development Policy Operations (DPO) facility to Kes129 billion.
“The agreement is subject to IMF management approval and consideration by the Executive Board, which are expected in July. Upon completion of the fifth reviews by the IMF Executive Board, Kenya would have immediate access to SDR306.7 million (about US$410 million), including from the augmentation of access under the ECF/EFF,” IMF tem lead Haimanot Teferra said.
“This would bring total IMF financial support disbursed under the EFF and ECF arrangements to SDR1,509 million (about US$ 2,017 million). With the EFF/ECF augmentations and the RSF support, the total IMF commitment under these arrangements would be SDR2.633 billion (about US$3.52 billion),” she said.
Kenya secured the commitment of the multilateral lender for additional resources to deal with dollar shortages amid rising debt payments during the Fund managing director Kristalina Georgieva’s visit.
Ms Georgieva said “Kenya is a case of innocent bystander. It has been hit by external shocks” and that “the government can raise money from sources including syndicated loans and the IMF” to avoid any defaults.
Her comments helped cool investor fears, bringing the rate on Kenya’s ten year Eurobond maturing in June next year down by 5.5 percentage points in just two weeks.
Even ratings downgrade by Moody has done little to dampen investor confidence from the multilateral lenders support that has seen local treasury bonds get full subscriptions after months of underwhelming investor participation.
The extra funds will go into repaying local debt according to two debt risk consultants, who have been involved in several African Eurobonds, Robert Besseling, CEO, Pangea-Risk and Faisal Khan, Managing Partner, Acre Impact Capital, offering the first step in saving Kenya from what they call a “chaotic and untransparent defaults, such as those of Zambia in 2020 and Mozambique in 2016, which triggered financial crises, years of divestment, and a collapse in investor trust”.
“The bulk of IMF disbursements to Kenya are being allocated to debt servicing, which now accounts for almost half of state revenue,” the analysts say in a white paper The Politics of African Debt Restructuring.