The Executive Board of the International Monetary Fund (IMF) has approved a $2.34 billion loan for Kenya. The three-year financing package is meant to support the next phase of the country’s response to the novel coronavirus and its plan to reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups, the IMF said.
It added that the fund-supported program will also advance the broader reform and governance agenda, including by addressing weaknesses in some state-owned enterprises (SOEs) and strengthening transparency and accountability through the anticorruption framework.
The 38-month arrangements were approved under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF). Approval of the ECF/EFF enables immediate disbursement of about US$307.5 million, usable for budget support, IMF said.
Today’s action follows Fund emergency support to Kenya in May 2020 (100 percent of quota, equivalent to US$739 million at the time of approval).
IMF said Kenya was hit hard at the onset by the COVID-19 pandemic. With a forceful policy response, the economy has been picking up heading into 2021 after likely posting a slight contraction of 0.1 percent in 2020.
“Even with this recovery, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed,” the Fund said, adding that the COVID-19 shock also exacerbated the country’s pre-existing fiscal vulnerabilities. Kenya’s debt remains sustainable, but it is at high risk of debt distress.
“To address debt-related risks, the 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. Fiscal and balance-of-payments financing needs remain sizable over the medium term. 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,” IMF said.