ECONOMIC RECOVERY

Yatani defends Kenya's new Sh255bn IMF loan

Treasury Cabinet Secretary cites budget constraints in face of dwindling revenues and competing needs

In Summary

•Yatani said the additional support will help provide liquidity to small businesses “to forestall a greater humanitarian crisis.”

National Treasury and Planning CS Ukur Yattani during an interview at the National Treasury Building, Nairobi, on December 22.
HOPE: National Treasury and Planning CS Ukur Yattani during an interview at the National Treasury Building, Nairobi, on December 22.
Image: MERCY MUMO

Treasury Cabinet Secretary Ukur Yatani has defended the Sh255 billion the country from the International Monetary Fund.

Kenya seeks to use the cash, which the first batch of Sh34.5 billion is expected this week, to support the next phase of Covid-19 response.

Yatani said the new loan facility expected from IMF is was part of his fiscal strategy to abandon commercial loans.

“Equitable and affordable access to the vaccine is critical and help from the international community are urgently required,” the CS told the Star.

The IMF board approved the country's request on Friday. 

The cash is expected to stabilize debt levels.

The CS said the monies would help mitigate ‘the devastating effects of Covid-19 and set the stage for economic recovery.

The Treasury boss said concessional loans would be the best way to go about meeting budget deficits to keep the country afloat.

Curfews and restrictions on public gatherings have caused massive job losses and consequently cuts in national revenue earnings.

In a proposal to the Bretton Woods institution, Yatani said the effects of the pandemic and restoring the economy would require significant additional cash.

The CS said the country is faced with the dilemma of meeting the citizens’ basic needs - including vaccinations, and maintaining macroeconomic stability.

In this regard, Yatani said the priority remains saving lives and livelihoods through increased spending on health and safety nets.

Yatani said the additional support will help provide liquidity to small businesses “to forestall a greater humanitarian crisis.”

Without the support, the country would have had to cut spending on investment and social programs, IMF said.

The Treasury also wants the consolidation period for the Debt Service Suspension Initiative (DSSI) extended for a further one year to June 2022.

He said the move will yield additional external resources, addressing debt vulnerabilities, and providing liquidity.

He justified the engagement with the IMF citing countries’ declining ability to carry additional debt, with a weaker outlook on economic growth.

Yatani holds that debt servicing costs are slowly reaching unsustainable levels in the face of the contraction in exports and increased exchange rate volatility.

He argued that Kenya, like many African countries, requires external assistance to enable sustained fiscal consolidation and economic growth.

The CS thus wants the IMF to enhance the limits of access to its facilities through reallocation of existing special drawing rights and allocating new ones.

Without the support, the country would have had to cut spending on investment and social programs
IMF

Yatani wants the IMF to “strengthen the quick disbursement through Rapid Credit Facility (RCF) and (Rapid Financing Instrument (RFI) and short term liquidity lines.”

He also prayed to the World Bank and the IMF to re-profile existing debts owed by poor and lower-middle income countries, on a case by case basis.

This, the Treasury boss said, would be to avoid emergence of a humanitarian crisis in the region.

He said this was since most low income countries’ external debt is owed to multilateral creditors.

Also factored in the urgent call is that the Covid19 crisis has brought to the fore, the need for global collective action.

The CS said that the on path to recovery, African economies need to invest in building a climate resilient economy and boosting investment in digital technologies.

“This will help provide employment opportunities, close the digital divide, enable social safety nets to better reach the most vulnerable, and address the climate challenges buffeting the region,” he said.

The Treasury boss further held that international trade is critical for economic recovery after the disruptions caused by the pandemic.

He urged the two agencies to provide the facilitation citing the country’s commitment to the African Continental Free Trade Area.

Yatani said economic and structural reforms would focus on attracting international community support as well as investment and employment creation for the youth.

IMF, in backing the request, cited pressure on public health facilities, development goals set back, and worsening debt and fiscal positions.

It called on Kenya to ensure transparent use of funds to ensure government spending is channeled to most needful areas.

“The impact of fiscal consolidation would need to be softened by more efficient spending,” IMF said in a statement.