The International Monetary Fund (IMF) Executive Board has approved a KES 55.1 billion ($447.39 million) loan to Kenya, paving the way for immediate release of the funds to the exchequer for budgetary support.
This follows the fourth review of the $2.34 billion (KES 288 billion) 38-month Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements with Kenya.
This brings Kenya’s cumulative disbursements under the EFF/ECF arrangements to about $1.655 billion (KES 203.84 billion)
The loan, which was approved in April 2021, aims to support Kenya’s program to address debt vulnerabilities, the response to the Covid-19 pandemic and global shocks, and to enhance governance and broader economic reforms.
The IMF noted that Kenya’s economy remains stable and projects it to grow by 5.3 per cent this year despite a challenging global environment but warned that climate-related risks are elevated in the medium term.
The loan is expected to help buffer Kenya’s foreign exchange reserves which had fallen to just 3.98 months of import cover below the legal threshold of 4 months.
“Kenya’s commitment to its economic program supported by the Fund’s EFF and the ECF arrangements is anchoring debt sustainability. 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. Mutually reinforcing prudent macroeconomic policies and resolute implementation of structural reforms remain essential to safeguard positive medium-term prospects,” said Antoinette Sayeh, the IMF deputy managing director.
She further said that the strong performance of tax revenues has supported resilience and cushioned the initial impact of global shocks on households and businesses, and lauded the gradual withdrawal of fuel subsidies by Dr Ruto’s administration as well as plans for reprioritization of expenditure to cut the fiscal deficit.
“Looking ahead, continued strong commitment to fiscal consolidation over the medium term remains key to reduce debt vulnerabilities. Additional tax policy measures, anchored in a Medium-Term Revenue Strategy to secure space for needed social and development spending, and improved spending efficiency, revenue administration, and public financial and debt management will be key,” Antoinette Sayeh, IMF deputy MD.
The lender also welcomed the move by the Central Bank of Kenya (CBK) to raise the base lending rate for the second time in a row to ease inflation, arguing that “further tightening would limit second-round effects and keep inflationary expectations well-anchored while supporting external adjustment”.
Read also; IMF Approves KES 52 Billion Credit Facility for Kenya.