The International Monetary Fund (IMF) confirmed that it had reached a staff-level agreement with Kenya that paves the way for $433 million ( (Kshs 52.7 billion) in financing.
The discussions were on the fourth review of Kenya’s 38-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) financing.
Upon completion of the formal approval by the IMF Board, the financial support will be the fifth tranche of the approved loan facility, totalling USD 2.3 billion (Kshs 284.8 billion), which was announced in April 2021.
This will bring the amount received from the facility to a total of USD 1.6 billion (Kshs 199.7 billion).
“Upon completion of the Executive Board review, Kenya will have access to USD 433 million, bringing the total IMF financial support under these arrangements to US $1,548 million,” the IMF said in a statement.
The funds will assist Kenya in covering external financing needs resulting from drought and challenging global financing conditions.
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“The Kenyan economy has been resilient in the face of a challenging environment. Food insecurity has increased on severe drought in parts of the country. Higher food and energy prices have pushed up inflation and pressured the external position,” the IMF said.
| International Monetary Fund (IMF) EFF and ECF Financing Programme | ||
| Date | Amount Received (USD mn) | Amount Received (Kshs bn, 1 USD= Kshs 121.7) |
| Apr-21 | 307.5 | 37.4 |
| Jun-21 | 407.0 | 49.5 |
| Dec-21 | 258.1 | 31.4 |
| Jul-22 | 235.6 | 28.7 |
| Nov-22 | *433.0 | 52.7 |
| Total Amount Received | 1641.2 | 199.7 |
| Amount Pending | 698.8 | 85.1 |
| *Expected funds upon IMF management and executive board approval | ||
Kenya and Debts
The financial support comes when the country aims to optimize concessional loans and reduce the use of costly commercial loans through its Medium Term Debt Strategy.
The new administration plans to cut public expenditures to reduce the fiscal deficit, which is projected to be 6.2% of the country’s gross domestic product (GDP) in FY2022–2023, to further reduce it to 4.3% of GDP in FY 2023–2024.
According to the National Treasury, the total public debt stood at Kshs 8.6 trillion as of July 2022, with the IMF’s total financing to Kenya coming in at Kshs 234.2 billion as of July 2022, representing 12.0% of the total multilateral debt.
“There has been good progress on fiscal adjustment needed to address debt vulnerabilities though pressures remain elevated. The overall deficit on cash basis declined from 8.2 per cent of GDP in FY2020/21 to 6.2 percent of GDP in FY2021/22,” said IMF.
“The lack of funds contributed to 0.7 per cent of GDP in unpaid obligations that were carried over to FY2022/23. Significant unbudgeted spending in the early months of this fiscal year, much of it for fuel subsidies, pose an additional challenge,” it said.
The receipt of the USD 433.0 billion in funds is also expected to increase the country’s foreign exchange reserves, which have dropped by 17.5% year to date to USD 7.2 billion from the USD 8.8 billion recorded at the beginning of the year.
Consequently, the funds will help support the Kenyan shilling from further depreciation, having depreciated by 7.6% year to date.
Furthermore, the financing is also expected to boost the country’s import cover, which has declined to 4.1 months, currently slightly above the statutory requirement of 4 months, as of 11th November 2022, from 5.4 months in 2021.