IRONY

Give and critique, Kenya's debt relationship with IMF

The Washington based lender is set to approve $2.4 billion to the East African nation.

In Summary
  • In May, the IMF provided $739 million in the form of an interest-free loan under the Rapid Credit Facility to help Kenya weather the initial shock.
  • According to the National Treasury data, Kenya's total public debt hit Sh7.28 by end of last year. 
CAUTION: IMF wants local banks to tread carefully in regional expansion.
CAUTION: IMF wants local banks to tread carefully in regional expansion.

Kenya’s fiscal and debt positions have worsened, adding to difficulties that existed even before coronavirus economic shock, the International Monetary Fund (IMF) has said. 

The international lender said this in a country focus analysis issued on March 18, a classic irony, considering that it is set to approve a further $2.4 billion ( about Sh261 billion) loan to the East African country whose total public debt has more than tripled in the past decade. 

According to the National Treasury data, Kenya's total public debt hit Sh7.28 by end of last year. 

The international lender further revealed that  other development partners will also be providing substantial amounts of concessional financing to the country in the near future. 

''Without this help, Kenya would have to aggressively cut spending on investment and social programs, making it more difficult to achieve a durable and inclusive recovery," IMF said in a statement.

Mid last month, the IMF team and the Kenyan authorities reached a staff-level agreement on a 38-month programme to help the next phase of the country’s Covid-19 response and a strong multi-year effort to stabilise and begin reducing debt levels relative to GDP.

In May, the IMF provided $739 million in the form of an interest-free loan under the Rapid Credit Facility to help Kenya weather the initial shock.

This helped to cover the cost of additional spending on health, social protection, and speeding up payments to bolster the economy.

This is not the first time IMF, one of Kenya's leading institutional lenders is chiding the country for its high debt appetite.

In May last year, the  Bretton Woods institution raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis.

“The risk of debt distress has moved to high from moderate due to the impact of the global Covid-19 crisis which exacerbated existing vulnerabilities,” the fund said in an assessment of the country's creditworthiness. 

Four months earlier, the lender had indicated that Kenya risks losing access to cheap Eurobonds due to its debt pile-up, citing investor concerns over possible defaults or deferment of repayments.

The IMF's assessment of Kenya’s debt sustainability showed the country was likely to breach the threshold over the next decade going by the level of external loans against the value of dollar-earning exports, tax revenues and gross domestic product (GDP)—factors that drive lending decisions and pricing of sovereign debt.

The report suggested that Kenya is susceptible to export and market financing shocks and more prolonged and protracted shocks to the economy would also present downside risks to the debt outlook, including from the continued potential loss of market access.

 ''Raising the probability that the debt indicators would remain in breach of the thresholds over time,” the IMF said in its assessment report.

In a report dubbed ‘The Fallacies and Pitfalls of the IMF Policies in Kenya’ ActionAid chides IMF over doublespeak, blaming it for the country's inconsistent fiscal plans. 

''Due to the Fund’s obsession with control of money in circulation to ensure that inflation and interest rates are stable, it has advised developing countries to increase their reserves rather than spend the additional resources that are given as aid or loan,'' the decade long report reads.