- The International Monetary Fund board approved a $2.34 billion (Sh255 billion) facility to help Kenya up its budgetary needs in the wake of Covid-19.
- This explainer seeks to look into some of the facilities and terms offered by IMF.
Kenyans have in the past week taken to social media to question the increasing accumulation of loans by the government.
The uproar came after the International Monetary Fund approved a $2.34 billion (Sh255 billion) facility to help Kenya shore its budgetary needs in the wake of Covid-19.
The social media pressure by Kenyans forced the international lender to give a detailed explanation of the facility
“On April 2, 2021, the board approved 38-month arrangements under the Extended Credit Facility and the Extended Fund Facility for Kenya in an amount equivalent to (about $2.34 billion) to support the next phase of the authorities’ Covid-19 response and address the urgent need to reduce debt vulnerabilities,” IMF said.
According to the Bretton Woods institution, Kenya was hit hard at the onset of 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.
“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,” IMF said.
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.
However, it failed to elaborate the terms and conditions of the facility, leaving the public wondering if the amount is refundable, a grant, or a loan.
Below, an explainer of some of the facilities and terms offered by IMF.
Stand-By Arrangement: This is intended for emerging and advanced market economies to address the short-term or potential balance of payments problems.
It typically covers a period of 12-24 months, but no more than 36 months and repayments are due within three to five years.
Standby Credit Facility: Similar in purpose to the SBA, this instrument is used to address the short-term or potential balance of payments problems but intended for low-income countries under the PRGT.
SCF has a repayment grace period of four years and a final maturity of eight years.
Extended Fund Facility: The EFF is designed for emerging and advanced market economies with the longer-term balance of payments problems, where impediments to growth are considered structural. xx
EFFs are typically approved for three years but may be extended. Repayments are due within four to ten years.
Extended Credit Facility: The ECF is the equivalent to the EFF for low-income countries and falls under the PRGT. It is designed to address medium-to-long-term structural issues.
Rapid Financing Instrument: They can be used for a range of urgent needs, like natural disasters, conflicts and commodity price shocks and should be repaid within three and a quarter to five years.
Rapid Credit Facility: The RCF, as is the case with the RFI, is designed for rapid financial assistance during crises, but serves low-income countries under the PRGT and carries a grace period of five years and final maturity of ten years.
Unlike other facilities, RCFs and RFIs are provided in one outright loan disbursement, meaning no conventional constitutionality needs to be met during the programme prior to disbursements.
Flexible Credit Line: The FCL is designed for countries that the IMF deems to have strong policy frameworks and track records in economic performance that are in an immediate cash crunch – but want to avoid the stigma and adverse market reaction associated with regular IMF programmes with conditionality.
The FCL, therefore, does not involve ongoing conditions and functions as a one-to-two-year renewable credit line.
Five countries have used the FCL so far (Chile, Colombia, Mexico, Peru and Poland). Repayment is required over a three-to-five-year period.
Precautionary and Liquidity Line: The PLL is designed to meet the liquidity needs of countries with economic frameworks that the IMF deems sound, but with remaining problems that preclude them from using the FCL. Only the Republic of North Macedonia and Morocco have used the PLL so far.
Catastrophe Containment and Relief Trust: The CCRT is different from the instruments above because it allows the IMF to provide grants, rather than loans, to the poorest countries in the form of debt relief.
It was designed in 2015 during the Ebola outbreak to provide relief during catastrophic natural or public health disasters and free up resources to meet the exceptional balance of payments needs.