July 14, 2024

IMF and Kenya Agree on Economic Reforms: Extended Fund Facility and Resilience and Sustainability Facility to Support Growth

Secretary of State Antony J. Blinken meets with Kenyan President William Ruto on the margins of the U.S.-Africa Leaders Summit in Washington, D.C., on December 15, 2022. [State Department photo by Ron Przysucha
Secretary of State Antony J. Blinken meets with Kenyan President William Ruto on the margins of the U.S.-Africa Leaders Summit in Washington, D.C., on December 15, 2022. [State Department photo by Ron Przysucha

The International Monetary Fund (IMF) has reached a staff-level agreement with the Kenyan authorities on economic policies and reforms, advancing the fifth reviews of Kenya’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements. The latest agreement announced on Tuesday also includes an extension of the program, augmentation of access under the arrangements, and reforms for access under a 20-month Resilience and Sustainability Facility.

Under the staff-level agreement, Kenya will receive an augmentation of access under the EFF/ECF arrangements amounting to 75% of quota (SDR407.1 million, approximately US$544.3 million). This augmentation is crucial given the challenging global financing conditions. Additionally, the duration of the EFF/ECF arrangements will be extended by 10 months until April 2025 to allow for the achievement of program objectives. Alongside these arrangements, a new 20-month Resilience and Sustainability Facility (RSF) will be implemented, also providing access of 75% of quota, running parallel to the EFF/ECF arrangements until April 2025.

The agreement, subject to IMF management approval and consideration by the Executive Board in July, will grant Kenya immediate access to SDR306.7 million (approximately US$410 million) upon completion of the fifth reviews by the IMF Executive Board. This disbursement, including the augmentation of access under the ECF/EFF, will bring the total IMF financial support under the EFF and ECF arrangements to SDR1,509 million (approximately US$2,017 million). With the EFF/ECF augmentations and the RSF support, the total IMF commitment under these arrangements will reach SDR2.633 billion (approximately US$3.52 billion).

The Kenyan economy has faced challenges due to a difficult external environment, including shortfalls in revenue collection and tight financing conditions. However, the government has responded promptly with prudent fiscal spending, and the draft FY2023/24 budget proposes further deficit reduction and significant revenue measures to lower the debt-to-GDP ratio. Monetary policy has also been tightened, with a 250 basis points increase in the central bank policy rate over the past year.

While the private sector has remained resilient, the Kenyan economy continues to grapple with slow global economic growth and tight financial conditions. The country experienced robust real GDP growth of 4.8% in 2022, despite a contraction in agriculture due to severe drought. Inflation has declined to 7.9% in April, although it remains above the target range. Efforts to enhance liquidity in the interbank market for foreign exchange and ensure exchange rate flexibility are crucial for effective market functioning and external position stability. Structural reforms, particularly in state-owned enterprises such as Kenya Airways and Kenya Power and Lighting Company, are essential to address budget resource drain and support a favorable medium-term economic outlook.

The IMF staff team, led by Haimanot Teferra, held constructive discussions with Kenyan authorities, including President William Ruto, Cabinet Secretary for the National Treasury & Economic Planning Prof. Njuguna Ndung’u, and Governor of the Central Bank of Kenya Dr. Patrick Njoroge. The team also engaged with other senior government officials, members of the National Economic Council, representatives from the private sector, civil society organizations, and development partners.

The staff-level agreement emphasizes the importance of advancing structural and governance reforms, as well as prioritizing climate resilience efforts. Integration of climate-related considerations into budget preparation and public investment frameworks, along with strengthening institutions to deliver and monitor Kenya’s ambitious climate agenda, will support macroeconomic stability and foster the transition

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