IMF approves Sh255bn loan to Kenya

The International Monetary Fund has approved a Sh255 billion loan for Kenya which the Treasury says would be used to support the next phase of the Covid-19 response and address the urgent need to reduce debt vulnerabilities.

The financing is under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF).

An initial disbursement of Sh79 billion is expected, of which Sh34 billion will be released immediately and Sh44.2 billion by June 30.

"The balance will be disbursed following subsequent programme reviews conducted approximately every six months," Treasury Cabinet Secretary Ukur Yatani said.

Treasury says the 38-month programme will help scale up Covid19 response; reduce debt vulnerabilities; address weaknesses in state-owned enterprises; and support financial stability.

Yatani said the country pursued the loan as the early measures announced by the government to the effect of tax reliefs, expanded health spending, and social interventions such as Kazi Mtaani set forth the need for additional cash.

The government says this was coupled with "uncertainties over the evolving nature of the Covid-19 pandemic as unsteadiness surrounding the supply of vaccines."

"These require that the government be adequately resourced to make prompt and targeted interventions," Yatani said in a statement.

"It is against this background that the government requested this disbursing programme, so as to cover these fiscal needs, by providing the additional resources."

Yatani said the Treasury is confident that the support and reforms in the deal will go a long way to mitigating the effects of the pandemic and help achieve budget objectives.

"The granting of this request is not only timely but also an expression of confidence in the soundness of the extended credit facility programme."

IMF says the Covid-19 shock exacerbated the country’s fiscal vulnerabilities, hence the need for additional funding support.

"Kenya’s debt remains sustainable, but it is at high risk of debt distress," the Bretton Woods institution said.

Antoinette Sayeh, Deputy Managing Director and Acting Chair of IMF board, said the programme a clear path to reducing debt-related risks.

She said the funding will bring the primary balance below its debt-stabilizing level during the EFF/ECF arrangements and restore tax revenue back to levels achieved in recent years.

IMF said the government should continue to provide the necessary support to the economy and secure space for social and development spending.

The reliefs, IMF said, should be provided much as the government had reversed some of the measures like the temporary tax cuts.

IMF also asked the government to consider structural reforms at the weak state-owned enterprises, which 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," Sayeh said.

IMF wants the fiscal structural reforms to prioritize revenue administration, spending efficiency, and fiscal transparency.

"Continuing improvement in the anti-corruption framework through steps to enhance transparency and accountability are also essential."

The lender further sought that CBK's monetary policy should remain accommodative in the context of the inflation targeting regime; the exchange rate to continue to function as a shock absorber, and close supervision of credit risks and provisioning should be maintained.