IMF, Kenya agree on new $2.4b funding to shore up a battered economy

The International Monetary Fund (IMF) and Kenyan government have reached an agreement for an additional $2.4 billion financing to help stabilise the operations of an economy battered by mounting debts and the devastating Covid-19 pandemic.

This is in addition to the $739 million that the Fund’s Executive Board approved on May 6 last year that was to be drawn under the Rapid Credit Facility to support response to the Covid-19 pandemic.

The IMF staff team led by Mary Goodman conducted virtual missions to Kenya from December 9 to 17, 2020 and from February 4 to 15, 2021 to undertake negotiations on a combined 38-month programme under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements.

“I am pleased to announce that the Kenyan authorities and the IMF mission team have reached agreement on economic and structural policies that would underpin a 38-month program under the EFF and ECF arrangements for about $2.4 billion,” said Ms Goodman.

The staff-level agreement is however subject to IMF management approval and Executive Board consideration, which is expected in the coming weeks.

In a statement on February 5 this year, IMF said the three-year financing facility will support the next phase of Kenya’s Covid-19 response and the country’s plans for a strong multi-year effort to stabilise the economy and begin reducing debt levels, laying the ground for durable and inclusive growth.

IMF has so far disbursed over $16 billion in emergency financial assistance to 34 countries in sub-Saharan Africa including Rwanda, Kenya, Uganda and Tanzania, and provided relief on debt service payments to the Fund under the Catastrophe Containment and Relief Trust (CCRT).

Kenya was hard-hit at the onset of the Covid-19 crisis, but has been recovering since mid-2020.

According to IMF, Kenya’s forceful early actions cushioned the pandemic’s economic impact, and real GDP growth is projected to have contracted by 0.1 percent in 2020.

Inflation remained within the central bank’s target band, reaching 5.7 percent in January, while financial sector vulnerabilities have been contained and the banking system remains well capitalised overall.

The external sector proved resilient against the backdrop of the shock, with horticultural exports and remittances performing well.

The reopening of schools and removal of pandemic containment measures are expected to underpin a growth rebound to 7.6 percent in 2021, even as some sectors of the economy face continuing headwinds.

The Kenyan authorities have begun to roll back some of their extraordinary economic support measures.

With the pickup in activity, the earlier temporary personal and corporate income tax cuts as well as the reduced VAT rate were discontinued at the end of December 2020, shoring up tax revenues.

The IMF mission team agreed with the Kenyan authorities on a programme to support the next phase of their Covid-19 response.

The authorities’ programme aims at reducing debt vulnerabilities through a multi-year fiscal consolidation effort, centred on raising tax revenues and tight control of spending, which would safeguard resources to protect vulnerable groups.

It would also advance the structural reform and governance agenda, including by addressing weaknesses in some state-owned enterprises (SOEs) and ongoing efforts to strengthen transparency and accountability through the anticorruption framework.

According to IMF the program would also strengthen the monetary policy framework and support financial stability.