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IMF gives Sh28b loan to support Kenya’s budget

Wednesday, July 20th, 2022 01:16 | By

International Monetary Fund (IMF) has approved Kenya’s $235.6 million (Sh27.96b) loan facility to shore up its budgetary needs amid efforts to tackle debt vulnerabilities and tightening  fiscal space.

IMF’s move means it will have disbursed a whopping $1.21 billion to Kenya out of a total $2.34 billion under a 38-month programme approved in April 2021 at the peak on the Covid-19 pandemic.

The Bretton Woods institution reviewed Kenya’s request for an additional emergency loan, even as the country fell behind on key commitments including establishment of a central payroll and making public ownership details of companies that are awarded public tenders as a way to curb corruption.

The lender says on its website that the loan was approved after completing Kenya’s latest review. However, it warns that risks still abound.  “Despite the resilient economic recovery, the programme remains subject to downside risks, including from deeper disruptions from the war in Ukraine, unsettled global market conditions, and an increase of food insecurity,” said the IMF.

Policy tightening by CBK

The Washington-based lender sees Kenya’s economy rebounding strongly from the Covid-19 pandemic shocks and is projected to grow by 5.7 per cent in 2022.

It also applauded the Central Bank (CBK) for recent monetary policy tightening. The the lender however warned of further adjustments to limit ‘second-round effects’ from higher food and fuel prices, and also meant to keep inflation expectations’ well-anchored.

Inflation rate moved above the CBK official target band of 2.5 per cent to 7.5 per cent in June and IMF expects inflation to peak later in the year, before easing back within the band in early 2023.

Inflation — a measure of annual changes in the cost of living— hit 7.9 per cent in June from 7.1 per cent in May, says Kenya National Bureau of Statistics latest data.

Antoinette Sayeh, IMF Deputy Managing Director said commitment to prudent policies and advancing structural reforms will maintain macro-economic stability and safeguard Kenya’s positive medium-term prospects.

“Strong fiscal performance is providing a welcome resilience. Although the authorities are adjusting domestic fuel prices to international levels more gradually, programme targets are still being met thanks to strong tax revenues” she said after the conclusion of the executive board’s discussion Tuesday.

A strong tax performance in the fiscal year 2021/22 helped cushion part of the impact of rising international fuel prices on households.

This as Kenya Revenue Authority (KRA) surpassed its target by recording a historic annual revenue collection of Sh2.031 trillion in the 2021/2022 fiscal year, defying turbulent economic times that have left households reeling under high commodity prices.

Debt vulnabilities

Collections increased by 17.8 per cent compared to Sh1.669 trillion collected in the previous 2020/2021 FY after the taxman exceeded the original Sh1.882 trillion fiscal year target.

“Authorities should sustain their fiscal consolidation efforts to reduce debt vulnerabilities while securing space for needed social and development spending. This requires further improving spending efficiency and undertaking additional tax policy and revenue administration measures drawing from the forthcoming Medium-Term Revenue Strategy,” advised IMF.

The Bretton Woods institution said Kenya’s structural reform agenda which focused on improving governance, has advanced despite some delays. “Building on the ongoing efforts to improve the oversight of state-owned enterprises, it is essential to advance the restructuring of Kenya Airways and restore the long-term viability of Kenya Power and Lighting Company.”

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