Kenya & IMF reach agreement on Ksh.262.7 billion 3-year loan

Kenyan authorities and the visiting team from the International Monetary Fund (IMF) have reached a staff-level agreement on the disbursement of a Ksh.262.7 ($2.4 billion) loan facility.

The agreement in principal will see the disbursement of funds from the IMF Rapid Credit Facility (RCF) and the Extended Fund Facility (EFF) over the next 38 months to support the countries COVID-19 response.

“The staff-level agreement is subject to IMF management approval and Executive Board consideration, which is expected in the coming weeks. The program will support the next phase of the country’s COVID-19 response and the authorities’ plans for a strong multi-year effort to stabilize and begin reducing debt levels relative to GDP, laying the ground for durable and inclusive growth over the years to come,” said Mary Goodman, an IMF staffer leading the mission to Kenya.

The IMF staff team conducted virtual missions to Kenya from December 9 to December 17 and concluded the assessments between February 4 and February 15.

The team met with Treasury Cabinet Secretary Ukur Yatani, Central Bank of Kenya (CBK) Governor Patrick Njoroge, Head of Public Service Joseph Kinyua among other government officials.

The new facility has been anchored on expected fiscal tightening measures including the recent reversal on tax relief measures and expected reforms on State owned enterprises (SOEs).

“Overall, the authorities’ decision to pause fiscal adjustment this year will allow accommodating health, social, and development spending to support the recovery, complemented by accommodating monetary policy,” the IMF said in its statement issued on Monday.

“The authorities’ program aims at reducing debt vulnerabilities through a multi-year fiscal consolidation effort, centered on raising tax revenues and tight control of spending, which would safeguard resources to protect vulnerable groups. It would also advance the structural reform and governance agenda, including by addressing weaknesses in some SOEs and ongoing efforts to strengthen transparency and accountability through the anti-corruption framework.”

Disbursements from the program are likely to be made in three parts across the 2020/21 financial year ending in June to the 2022/23 fiscal year.

The agreement in principal is set to lessen the exchequer’s pressure to finance a widened fiscal deficit and will likely see it re-balance its external financing sources.

Under the year to June, Treasury had expected the disbursement of Ksh78.8 billion and Ksh.54 billion in the fiscal year commencing in July according to estimates contained in the 2021 Budget Policy Statement (BPS).

Other cheap sources of external financing expected from Kenya’s multi-lateral lenders include Ksh.82.5 billion from the World Bank Development Policy Operations (DPO) and Ksh.13.8 billion from the African Development Bank (AfDB).

Last year, Kenya re-integrated IMF funding to its budget having received a Ksh.80.9 billion ($739 million) RCF loan facility in May.