The International Monetary Fund (IMF) projects Kenya’s economy to grow at the rate of 0.8 % in 2020 against National Treasury’s estimate of 3%. This is 5 percentage points below the pre-COVID 19 baseline. The World Bank says Kenya’s GDP could hit below 0.2%.
It is against these grim projections that the IMF recently disbursed credit facilities to the tune of $ 739 Million to Kenya, to help build up its forex reserves, protect the Shilling and provide the much-needed muscle to cater for expenditures needed to combat the global COVID-19 pandemic.
The Fund notes that the global pandemic is taking a serious toll on Kenya’s economy, significantly cutting its growth and creating enormous fiscal and external financing needs.
The credit line will meet Kenya’s urgent balance of payments needs as a result of the pandemic. The IMF warns that the impact of the pandemic on Kenya’s economy will be severe, transmitted through global and domestic channels with downside risks looming large.
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“The COVID-19 pandemic has delivered a large economic shock to Kenya. The pandemic has impacted nearly all facets of the economy-particularly tourism, transport and trade-and led to urgent balance of payments and fiscal financing needs,” said Mr Tao Zhang, Deputy Managing Director and Acting Chair.
The IMF facility will provide liquidity support to help Kenya cover its balance of payments this year. It will also provide financial resources to buttress public health facilities and support households as well as firms hit by the pandemic. IMF’s support also opens the door for other members of the donor community to also open their purse strings.
Authorities maintain that an independent post-crisis audit of COVID-19 related expenditures is conducted and results made public. This is to safeguard funds from being diverted from their intended purpose. IMF assesses Kenya’s Balance of Payments financing gap to be about US $2.1 billion or 2% of the country’s GDP.
Banking Sector
In its report on Kenya’s banking system, the IMF mentions that the industry’s’ asset quality could deteriorate as the trade sector accounts for the largest share of bank loans and the impact of COVID-19 on small and medium-sized enterprises (SMEs) will impact their loan performance.
The Fund acknowledges efforts by the Central Bank of Kenya( CBK) to provide the much needed monetary stimulus to the economy. To help support the economy, the CBK recently cut the policy rate to 7%, increased reverse repo tenors and temporarily increased flexibility on banks’ loan classification and provisioning requirements.
At the same time, commercial banks are extending flexibility on loan terms to borrowers impacted by the pandemic on a case by case basis. Further, mobile network operators are waiving or reducing charges on mobile money transactions to disincentivize use of cash.
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