Kenya and the International Monetary Fund (IMF) team have reached staff-level agreement for Kshs. 264 billion ($2.4 billion) loan facility that is expected to help the country in its COVID-19 response and stabilize the rising debt.
The 38-months program will be disbursed under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements according to Mary Goodman who leads the IMF staff team which conducted virtual missions to Kenya from December 9 to 17, 2020 and from February 4 to 15, 2021.
“The staff-level agreement is subject to IMF management approval and Executive Board consideration, which is expected in the coming weeks. The program will support the next phase of the country’s COVID-19 response and the authorities’ plans for a strong multi-year effort to stabilize and begin reducing debt levels relative to GDP, laying the ground for durable and inclusive growth over the years to come,” said Goodman.
IMF noted the effects the health pandemic has had on the economy since March last year albeit slow recovery which has been recorded since mid-2020.
IMF team noted that the government has managed to keep inflation within the central bank’s target band which hit 5.7% in January, while financial sector vulnerabilities have been contained and the banking system remains well capitalized overall.
The external sector proved resilient against the backdrop of the shock, with horticultural exports and remittances performing well, IMF said.
“The reopening of schools and removal of pandemic containment measures are expected to underpin a growth rebound to 7.6% in 2021, even as some sectors of the economy face continuing headwinds,” said IMF.
The 3-year facility is expected to help Kenya reduce debt vulnerabilities through a multi-year fiscal consolidation effort, raise 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 and ongoing efforts to strengthen transparency and accountability through the anticorruption framework. Finally, it would strengthen the monetary policy framework and support financial stability.”
The facility is similarly expected to stabilize debt as a share of GDP and reduce it down further over the course of the program.
“This will free up resources for private investment, setting a strong footing for durable growth coming out of this global shock. The program will also form a strong basis for support from other development partners.”