Kenya Unlocks $624.5m Loan from IMF
Williams Ruto, President

The Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation with Kenya together with the sixth review and augmentations of access about US$941.2 million under the extended arrangements.

According to the multilateral lender, the disbursement is under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF), approved in April 2021 and extended by 10 months from July 2023 to April 2025, and the first review under the 20-month Resilience and Sustainability Facility (RSF) arrangement, approved in July 2023.

The Board’s decision allows for the immediate disbursement of about US$624.5 million under the EFF/ECF arrangements – which includes an augmentation of access of about US$310.6 million- and brings total disbursements under the EFF/ECF arrangements to about US$2.6 billion.

The decision also allows for an immediate disbursement of about US$60.2 million under the RSF arrangement. In completing the reviews, the Executive Board also approved a modification of program conditionalities, waivers of non-observance of the continuous performance criterion on no new accumulation of external arrears.

The approval was also achieved following the end-June 2023 and end-December 2023 tax revenue targets considering the corrective actions taken by the authorities, and waiver of applicability for all other end-December 2023 performance criteria.

The Kenyan economy remains resilient against a challenging global backdrop even as it recovers from the legacy of the COVID-19 pandemic and the worst multi-season drought over the past two years, IMF said.

The economy expanded by 5.6 per cent year on year in the first nine months of 2023, driven by a strong recovery in agriculture which also helped lower both overall and food inflation. Non-agricultural growth, however, slowed amid tighter policies.

Fiscal consolidation continued, delivering a stronger primary balance than originally envisaged in FY2022/23, while monetary policy was tightened by 375 basis points in 2023.

The external current account balance has improved as the real exchange rate depreciated and imports contracted. Exports and remittances remained resilient. While foreign exchange reserves remain adequate, they declined in the second half of 2023 amid debt service payments and limited external financing inflows.

The near-term outlook is one of continued resilience with growth projected at around 5 percent in 2024 amid ongoing adjustments in the fiscal policy and external accounts.

Inflation is expected to inch up in the first half of 2024, driven primarily by global oil price volatility and exchange rate pass-through, but to remain contained due to the recent monetary policy tightening and as the authorities strive to deliver a stronger fiscal consolidation to stabilize the overall public debt/GDP in 2024.

Notwithstanding the elevated downside risks in the near term, the authorities should be resolute in their actions to help keep confidence anchored. Kenya’s medium-term prospects are positive and could be buttressed by improving competitiveness, and inclusivity, and enhancing governance and anti-corruption framework to support a vibrant and market-driven economy.

Progress on the authorities’ climate agenda, including RSF-supported reforms, will not only prepare the country well against future climate shocks but also help attract climate finance to support these further efforts.

After the Executive Board’s discussion, Ms. Antoinette Sayeh, Deputy Managing Direction and Acting Chair, said, “Kenya’s growth remained resilient in the face of increasing external and domestic challenges.

“The EFF/ECF and RSF arrangements continue to support the authorities’ efforts to sustain macroeconomic stability, strengthen policy frameworks, withstand external shocks, push forward key reforms, and promote more inclusive and green growth”.

“Kenya’s performance under the ECF/EFF arrangements have been mixed with adherence to quantitative targets being broadly satisfactory. The authorities have made welcome progress in some key areas, including governance and public financial management. Continued implementation of corrective measures to address missed targets and accelerated reforms will be important.

“The authorities’ commitment to fiscal consolidation while protecting essential social and developmental spending should support efforts to bring down the debt burden toward the new debt anchor of 55 percent of GDP in present value terms by 2029.

“Implementation of the Medium-Term Revenue Strategy would be key to reverse the erosion in the tax base while promoting equity and fairness in the tax regime and create more space for spending to improve public services.

“Risks to planned fiscal consolidation should be monitored and contingency plans promptly activated as needed. Effective communication of fiscal policy objectives would support efforts at easing financing pressures.

“Monetary policy has demonstrated its ability to react to inflation shocks and anchor expectations. The Central Bank of Kenya should continue to act decisively to ensure that inflation converges firmly to the target.

“Strengthening of the monetary policy framework would support price stability and external sustainability. The exchange rate should be allowed to respond flexibly to market conditions. Recent measures at facilitating greater exchange rate flexibility should help ease FX market dysfunction and support a buildup of FX reserves.

“The banking system is generally sound, but emerging vulnerabilities need close monitoring. Unlocking Kenya’s potential and realizing its positive medium-term prospects will require resolute efforts at sustaining structural reforms to support more job creation, poverty reduction, and making the economy greener and more resilient.

“To this end, boosting export competitiveness; addressing weaknesses in governance and the anti-corruption framework, including on AML/CFT; and improving resilience to climate shocks by further strengthening Kenya’s track record in promoting climate risk considerations in fiscal planning and the investment framework, improving disaster risk management, and attracting more climate finance will be important.” Nigeria Eurobond Slumps after CBN Resumes OMO Auction