- On April 2, 2021, the IMF approved 38-month arrangements under the Extended Credit Facility(ECF) and the Extended Fund Facility(EFF) for Kenya in an amount equivalent about $2.34 billion.
- According to the institution, Kenya was hit hard by the Covid-19 pandemic and even with the signs of the economy picking up into 2021, challenges remain.
Following social media pressure by Kenyans questioning the Sh255billion IMF loan, the lender has responded saying it loaned Kenya the money to help in the containment of public debt.
“On April 2, 2021, the Board approved 38-month arrangements under the Extended Credit Facility(ECF) and the Extended Fund Facility(EFF) for Kenya in an amount equivalent about $2.34 billion to support the next phase of the authorities’ Covid-19 response and address the urgent need to reduce debt vulnerabilities,” said the International Monetary Fund.
The EFF is designed for emerging and advanced market economies with longer-term balance of payments problems, where impediments to growth are considered structural.
EFFs are typically approved for three years but may be extended. Repayments are due within four-to-ten years.
The ECF is the equivalent to the EFF for low-income countries and falls under the Poverty Reduction and Growth Trust. It is designed to address medium-to-long-term structural issues.
According to the Bretton Woods institution, Kenya was hit hard at the onset by the Covid-19 pandemic and even with the signs of the economy picking up into 2021, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed.
“The Covid-19 shock also worsened the country’s pre-existing fiscal vulnerabilities and even if Kenya’s debt remains sustainable, it is still at high risk of debt distress,” said IMF.
The lender said some of the financial challenges Kenya is facing, had been outlined in the 2020/2021 financial year budget, and that not all the money lent to Kenya was going to be used on emergent needs such as battling the adverse effects of Covid-19.
To address debtrelated risks, IMF noted that the Kenyan authorities have taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 percent of GDP, respectively, this fiscal year and thus fiscal and balance-of-payments financing needs remain sizable over the medium term.
It also noted 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.
“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,” said the Executive Board’s discussion, Antoinette Sayeh, Deputy Managing Director and Acting Chair.
IMF has assured Kenyans that the authorities’ program would set a basis for a resurgence of growth and shared prosperity.
Building on critical steps already taken, it aims to reduce debt vulnerabilities through a multiyear fiscal consolidation effort centered on raising tax revenues and tightly controlling spending, safeguarding resources to protect vulnerable groups.
The lender also said it will also advance the structural reform and governance agenda, including by addressing weaknesses in some stateowned enterprises and strengthening transparency and accountability through the anticorruption framework to ensure the funds are not stolen.
“The program supported by EFF/ECF arrangements with the Fund provides a strong signal of support and confidence. It is also subject to notable risks, including from uncertainty about the path of the pandemic, and steadfast pursuit of the program objectives will be essential also considering the upcoming political calendar,” said Sayeh.
Outraged Kenyans on Tuesday expressed their frustrations with the Jubilee administration's appetite for borrowing, coming when the economy is struggling.
Citizens called on the IMF to stop any lending to the Jubilee administration
Capturing the spirit of anger, about 200,000 Kenyans had by Tuesday signed a petition to the IMF, pushing for suspension of any credit facility to the country.