The International Monetary Fund has raised Kenya’s 2021 economic growth forecast from 4.7% to 7.6% after reaching a financing agreement with Kenyan authorities. The IMF, on February 16, 2021, revealed that it had reached a 3-year $2.4 billion financing agreement with Kenya to support the country’s covid19 response and to reduce the level of debt relative to the GDP.
The IMF program is based on revenue-led fiscal consolidation and strong economic growth. Kenya expects a steady increase in tax revenue from the main tax revenue streams: income tax, value-added tax, import duty, and excise duty as the economy slowly returns to pre-covid19 growth levels.
Analysts at Citi Research do not share IMF’s highly optimistic outlook on Kenya’s GDP growth. The analysts describe the IMF’s forecast as extremely aggressive and expect Kenya’s economy to expand at 4.9% in 2021.
Although some lawmakers and analysts are against the issuance of a Eurobond due to the high interest cost, Kenya’s 2021 Budget Policy Statement shows that the country plans to issue KSh123.8 billion Eurobond before the end of the fiscal year ending in June 2021, and KSh124.5 billion Eurobond in the coming fiscal year 2021/22. In addition the National Treasury intends to use external re-financing options of KSh220 billion in the current fiscal year ending in June 2021 and KSh351 billion in the next fiscal year.
According to Citi Research, the Central Bank of Kenya may be one of the first central banks in Africa to raise its monetary policy rate in 2021 as the country aims to increase domestic debt issuance. The move will “act as a potential barometer for the potential policy response of other central banks across the continent,” say Citi.
Also Read: IMF & Kenya Agree on KSh 262.5 Billion Financing Package
