IMF board approves Ksh.255B loan, initial Ksh.33.5B to be issued in a few days

The International Monetary Fund (IMF) has approved a 38-month program which will see Kenya receive a total of Ksh.255.1 billion ($2.34 billion) in loan support.

The approval, rubber-stamped in Washington DC on Friday is expected to anchor the country’s next phase of combating the COVID-19 pandemic.

The country is expected to see its initial disbursements totaling to Ksh.33.5 billion ($307.5 million) in the next few days.

The loan program has been achieved under the Extended Credit Facility (ECF) and the Extended Fund Facility which serve to cover countries with short and medium term balance of payments problems arising from structural weaknesses.

“Kenya was hit hard at the onset by the COVID-19 pandemic. With a forceful policy response, the economy has been picking up heading into 2021 after likely posting a slight contraction of 0.1 per cent in 2020. Even with this recovery, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed,” said the IMF Executive Board.

The IMF says the program, which reached a staff level agreement earlier in February this year, charts a clear path to reduce Kenya’s debt-related risks.

The new IMF program has nevertheless been achieved on strict terms which for instance saw Kenya reinstate effective tax rates on income and VAT in January, ending cushioning for its citizens amidst a stay of the COVID-19 crisis.

IMF countinues to push reforms to cut Kenya’s fiscal vulnerabilities which it sees as largely centered on struggling State Corporations.

“The near-term reform agenda should also focus on urgent structural policy challenges. As financial weaknesses in some state-owned enterprises (SOEs) have emerged as a key source of fiscal risks, the ability to manage these risks should be strengthened while ensuring that any support provided to SOEs is consistent with Kenya’s limited fiscal space. Fiscal structural reforms should prioritize revenue administration, spending efficiency, and fiscal transparency,” the Board added.

This is Kenya’s second loan program from the IMF in under one year having received Ksh.80.6 billion ($739 million) in May last year on the premise of vulnerabilities exposed by the COVID-19 pandemic.

While addressing a news conference on Tuesday, CBK Governor Patrick Njoroge says he expected the new facility to anchor the government’s ongoing fiscal consolidation plan following interruptions from the pandemic.

“The bottom line is that the program will support our COVID-19 response and budget support. It anchors fiscal consolidation through revenue driven policies which minimize debt vulnerabilities. This is the key element of the program,” he said.

By the close of June this year, Kenya is expected to leverage more external funding including a scheduled Ksh.82.5 billion loan from the World Bank’s Development Policy Operations (DPO) and Ksh.123.8 billion from a Eurobond issuance.

New borrowing is nevertheless expected to raise the country’s stock of debt in the near term with total public debt at June 30 tabulated at Ksh.7.7 trillion from a lower Ksh.6.7 trillion at the end of June last year.

The IMF nevertheless says Kenya’s debt remains sustainable but at a high risk of debt distress with the COVID-19 shock exacerbating the country’s pre-existing fiscal vulnerabilities.

$1=Ksh.109