The International Monetary Fund (IMF) has extended another $235.6 million (Sh28 billion) loan to Kenya for budget support, bringing the country’s total disbursements for that purpose to about $1.2 billion.
The IMF said the funding will support Kenya to address debt vulnerabilities, the response to the Covid-19 pandemic and global shocks resulting from the war in Ukraine. The money will also be used to improve governance and support broader economic reforms.
Kenya’s economic programme supported by the lender’s Extended Fund Facility and Extended Credit Facility will provide an essential policy anchor for debt sustainability and boost public confidence, said Antoinette Sayeh, IMF deputy managing director.
“Despite the resilient economic recovery, the programme remains subject to downside risks, including from deeper disruptions from the war in Ukraine, unsettled global market conditions, and an increase of food insecurity,” Ms Sayeh said.
She added that the National Treasury’s continued commitment to prudent policies and advancing structural reforms remains essential in maintaining macroeconomic stability and safeguarding Kenya’s positive medium-term prospects.
But the lender pointed out that uncertainties stemming from the war in Ukraine, drought in semi-arid regions, unsettled global financial market conditions and the political calendar dog Kenya, though it added that the country’s medium-term outlook remains favorable.
“Although the authorities are adjusting domestic fuel prices to international levels more gradually, programme targets are still being met thanks to strong tax revenues,” she said.
Nevertheless, the IMF said 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.
“Looking ahead, the authorities should sustain their fiscal consolidation efforts to reduce debt vulnerabilities, while securing space for needed social and development spending,” the lender said.
“This requires further improving spending efficiency and undertaking additional tax policy and revenue administration measures drawing from the forthcoming Medium-Term Revenue Strategy.”
The Washington-based lender also welcomed the recent Central Bank of Kenya (CBK) monetary policy tightening. It added that the CBK should stand ready to continue to adjust its stance to limit second-round effects from higher food and fuel prices and to watch inflation amid a temporary increase above the target band.
“The flexible exchange rate functioned as a shock absorber during the pandemic and should continue to do so against current global shocks, with forex interventions limited to addressing excessive volatility,” she said.
The IMF has called for the restructuring of Kenya Airways to be hastened and for Kenya Power’s long-term viability to be restored.
“Further improvements in the anti-corruption framework and the AML/CFT [Anti-Money Laundering/Combating the Financing of Terrorism] agenda as well as an effective follow-up of expenditure audits are needed to enhance transparency and accountability,” Ms Sayeh said.
Kenya’s economy has rebounded strongly in a challenging environment and is projected to grow 5.7 percent in 2022. Inflation moved above the 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.
