Kenyan households should brace for an even higher cost of living due to international and local uncertainties, the IMF said on Tuesday.
In a statement approving $235.6 million (Sh28 billion) loan for Kenya, the International Monetary Fund's board warned that the upcoming general election will push up inflation before it eases early next year.
''Inflation moved above the Central Bank of Kenya’s (CBK) official target band of 2.5 percent to 7.5 percent in June and is expected to peak this year before easing back within the band in early 2023,'' the lender said.
It added that downside risks predominate in the near term.
According to the multilateral lender, elevated inflation will complicate the trade-offs central banks face between containing price pressures and safeguarding growth.
''Uncertainties stem from the war in Ukraine, continuing drought in the semi-arid regions, unsettled global financial market conditions and the political calendar. But Kenya’s medium-term outlook remains favourable,'' IMF acting chair Antoinette Sayeh said.
In April, the lender projected the country's inflation for the year to average 7.3 per cent
It maintained Kenya's economic growth prospects for the financial year at 5.7 per cent, pegged on the positive performance of the tourism sector following the global economic recovery and a robust private sector.
''Despite the resilient economic recovery, the program remains subject to downside risks, including deeper disruptions from the war in Ukraine, unsettled global market conditions, and an increase in food insecurity,'' the lender said.
Kenya, just like her global peers is facing a high cost of living that saw inflation cross the government-set mark in June to 7.9 per cent.
This, as traders pass down high importation costs arising from weakening shilling to consumers. Yesterday, the local currency dropped to a new low of 118.50 units against the greenback.
Even so, the Sh29 billion disbursed by Washington, D.C based lender is likely to offer a temporary reprieve as it shores up Kenya's diminishing foreign reserves.
The amount will be used for budget support, bringing Kenya’s total disbursements for budget support so far to about $1.208 billion (Sh141.6 billion) out of $2.3 billion (Sh243.8 billion) approved in April last year.
This follows the completion of the third review under the 38-month arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements by IMF's board late Monday.
In approving the much-delayed facility, the IMF board accepted Kenya's request for a waiver after falling behind on key commitments including the establishment of a central payroll.
''Kenya’s structural reform agenda, focused on improving governance, has advanced despite some delays. Oversight of state-owned enterprises is being reinforced,'' IMF said.
It added that new tender documents will allow achieving the longstanding goal of publishing beneficial ownership information of successful bidders for public procurements.
Other reforms that Kenya failed to meet include the restructuring of Kenya Airways and restoring the long-term viability of Kenya Power and Lighting Company.
The lender said an ongoing audit of Covid-19 vaccine spending and the recently completed comprehensive audit of FY2020/21 spending will improve transparency and enable follow-up by enforcement agencies and other stakeholders.
IMF applauded Kenya's strong fiscal performance, saying it is providing a welcome resilience.
The country's revenue agency collected way above target for the first time in 11 years during the financial year ended June 30.
Early this month, the tax agency said it grew revenue by 21.7 per cent or Sh148.9 billion to hit Sh2.03 trillion, eclipsing the previous high of 21 percent seen in the 2006/2007 fiscal year.
This was the first time the country’s revenue was hitting Sh2 trillion mark, having tripled over the past 11 years.
Even so so, the international lender criticised Kenya's subsidy programmes aimed at cushioning the public from rising inflation.
''More targeted programmes to support vulnerable households should accompany the ongoing review of the fuel pricing mechanism and plans for reforms to ensure that pricing actions are always aligned to the approved budget,'' IMF said.
