Kenya is set to receive a Sh257billion loan facility from the International Monetary Fund (IMF)-the Washington based lender.
The loan would help Nairobi deal with COVID-19 related funding shortages, fund structural reforms as well as address the urgent need to reduce Kenya’s debt vulnerabilities.
In a statement on Friday, IMF said its executive board had approved the 38-month financing plan under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF).
The ECF provides financial assistance to countries with protracted balance of payments problems.
Loans under an extended arrangement have a longer repayment period and are mainly used to help countries implement medium-term structural reforms.
“The three-year financing package will support the next phase of the authorities’ COVID-19 response and their plan to reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups,” IMF said in a statement.
National Treasury Cabinet Secretary Ukur Yatani said it is the country that walked to the IMF in the midst of the pandemic, and asked for support to deal with the budget gaps.
Yatani said all the structural reforms to be implemented were suggested by Kenya and not the IMF, as he moved to dispel fears that the lender was going to start another round of painful structural reforms that hurt Kenya in the Moi regime.
Yatani said some of the parastatals that are lined up for reforms include cash strapped Kenya Airways and Kenya Power, which is also in a dire financial position.
According to Yatani, the program would advance the broader reform and governance agenda, including by addressing weaknesses in some state-owned enterprises (SOEs) and strengthening transparency and accountability through the anti-corruption framework.
The approval enables immediate disbursement of about Sh33.8 billion ($307.5 million), usable for budget support.
And to address debt-related risks, Kenya has taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 percent of GDP, respectively, this fiscal year.
IMF Deputy Managing Director and Acting Chair Antoinette Sayeh said that authorities should continue to provide necessary support to the economy and secure space for social and development spending.
“The authorities’ program charts a clear path to reduce debt-related risks. It will bring the primary balance below its debt-stabilizing level during the EFF/ECF arrangements and restore tax revenue – which had been falling even before the Covid-19 shock – back to levels achieved in recent years,” said Sayeh.
The IMF boss said the near-term reform agenda should also focus on urgent structural policy challenges.
She said as financial weaknesses in some parastatals 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 them is consistent with Kenya’s limited fiscal space.
“Fiscal structural reforms should prioritize revenue administration, spending efficiency, and fiscal transparency.”
The statement says fiscal and balance-of-payments financing needs remain sizable over the medium term.
IMF added that support from the G-20 under the Debt Service Suspension Initiative (DSSI) and development partners will contribute to closing the financing gap in 2021 along with financing from capital markets.
This follows Fund emergency support to Kenya in May 2020 (100 percent of quota, equivalent to Sh81.2 billion ($739 million) at the time of approval.
IMF notes that Kenya was hit hard at the onset by the COVID-19 pandemic and with a forceful policy response, the economy has been picking up heading into 2021 after likely posting a slight contraction of 0.1 percent 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,” the statement reads.
IMF notes that Nairobi has committed to reduce debt vulnerabilities through a multi-year fiscal consolidation effort centered on raising tax revenues and tightly controlling spending, safeguarding resources to protect vulnerable groups.