Kenya to get another Sh28b loan from IMF
Kenya would have access to another $244 million (Sh28 billion) in financing from the International Monetary Fund (IMF) to help the country weather external price shocks following a staff level agreement reached last week.
The agreement which is part of the $2.3 billion Special Drawing Right (SDR) approved in April last year, is subject to approval of IMF management and the Executive Board in the coming weeks.
“IMF staff team and the Kenyan authorities have reached a country level agreement on the third review of Kenya’s economic programme under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF)arrangements,” said IMF head of communications Mary Goodman.
The country has been facing a volatile exchange rate with Central Bank of Kenya (CBK) resorting to fear tactics and closely watching banking sector activities. The IMF has been reported to have asked CBK to start increasing interest rates to save a volatile currency. National Treasury and Planning Cabinet Secretary, Ukur Yatani has in the past defended IMF loans, saying they aid the achievement of the government’s policy objectives.
Policy priorities
A staff team from IMF led by Goodman, conducted a hybrid mission to Kenya and in Washington DC from March 31 to April 22 to discuss progress on reforms and the authorities’ policy priorities in the context of the third review of Kenya’s economic programme supported by the financial institution.
Upon completion of the Executive Board review, Kenya would have access to $244 million, bringing the total IMF financial support under these arrangements to about Sh135 billion.
According to IMF the Kenyan economy has been staging a robust recovery as the effects of the pandemic wane, and the authorities remain vigilant.
“Spillovers from the war in Ukraine are expected to have a modest impact on growth in the near term, as Kenya’s direct exposure to Russia and Ukraine is relatively limited,” it said. The IMF Staff projects growth at 5.7 per cent in 2022, reflecting a pickup in agriculture and continued recovery in services and other sectors.
By mid-April 2022, 30 per cent of adults had been fully vaccinated against Covid-19, up from 5 per cent at end-2021. According to Goodman, the medium-term outlook remains favourable, supported by Kenya’s proactive reform efforts, although the outlook is subject to uncertainty.
Spillovers from the war in Ukraine are expected to temporarily push up inflation as domestic retail fuel prices gradually rise to global levels. Central Bank of Kenya has stated that it stands ready to take appropriate action to contain second-round effects of higher global prices on inflation.
The Bretton Woods institution said the exchange rate flexibility has served Kenya well and should continue to be a shock absorber that will help mitigate the impact of these external shocks.
Fiscal position
Kenya, IMF said is on track to meet its fiscal objectives and put debt as a share of gross domestic product (GDP) firmly on a downward path.
Kenya’s fiscal position has been underpinned by strong tax revenue performance this year, buoyed by a robust economic recovery and the important tax policy measures already undertaken as part of Kenya’s multi-year plan to reduce debt-related vulnerabilities,” the IMF added.
The New York-based institution is known for praising governments in the media while pushing for hard-hitting reforms such as more taxation under the radar.
These resources, IMF argues will bring resilience that will allow cushioning part of the impact of the sharp increase in global energy and fertiliser prices on households and businesses while still remaining within the authorities’ fiscal targets for Financial Year 2021/22.
