The International Monetary Fund (IMF) yesterday announced that its executives had completed their pre-disbursement engagements with Kenyan officials and approved another Sh44.2 billion tranche to be wired to the Central Bank of Kenya (CBK), as part of the 38-month program.
This now brings the total amount advanced to Kenya in the first three months of the facility to Sh77.9 billion.
The approval of the second batch, expected to hit Kenya’s accounts by next month, means that IMF is satisfied with the reforms being implemented by Kenyan government since the loan is tied to some specific performance conditions.
The lender said its staff team, led by Ms Mary Goodman, conducted a virtual mission to Kenya from April 29 to May 14, 2021.
The team discussed progress on reforms and the authorities’ policy priorities within the context of the first review of Kenya’s economic program supported by the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements.
“The IMF staff team and the Kenyan authorities have reached a staff-level agreement on the first review of Kenya’s economic program under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF),” Ms Goodman said at the conclusion of the mission.
Misuse of previous funds
“The agreement is subject to the approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Kenya would have access to SDR 285 million (equivalent to about US$410 million),” she said.
The remaining loan is expected to be disbursed every six months after IMF reviews.
Though IMF loans come relatively cheaper and are seen in international capital markets as an endorsement of the credit worthiness of a country, this latest loan from the IMF elicited opposition from Kenyans online, who signed a petition asking the Bretton Woods institution to stop loaning the country due to misuse of previous funds.Over 235,000 Kenyans had signed the petition by yesterday.
Kenya received the first tranche of Sh33.7 billion in April as it signed on a raft of painful structural reforms including reversal of tax reliefs, removing tax exemptions on some consumer goods, restructuring of loss making parastatals as well as dealing with the debt nightmare.
“The structural reform agenda during the first phase of the program will address urgent policy needs. In the near term, key priorities will be addressing challenges in SOEs (State Owned Enterprises) and governance,” an IMF document explaining the loan reads in part.
The parastatals lined up for structural reforms include Kenya Airways, Kenya Airports Authority (KAA), Kenya Railways Corporation (KRC) and Kenya Power.
Others are Kenya Electricity Generating Company, Kenya Ports Authority and the three largest public universities – Nairobi, Kenyatta and Moi.
Cushion blow to economy
IMF has commended Kenya’s decisive policy actions to contain the Covid-19 outbreak saying authorities’ actions helped cushion the blow to the economy and maintained the momentum necessary to advance Kenya’s economic reform agenda.
“With the easing of the third wave of Covid-19 infections compared to high levels seen into April, containment measures have been lifted. The authorities have also launched a Covid-19 vaccination program, and the IMF program is designed to support Kenya’s efforts to accelerate and expand vaccinations,” IMF said in a statement on Tuesday.
The lender said the economic recovery should be sustained, although the persistence of the pandemic suggests the pickup envisioned in 2021 will be slightly less strong than anticipated.
IMF staff now project Kenya’s economy to expand by 6.3 percent in 2021.
“The coronavirus shock has unfortunately also reversed some of the poverty reduction gains Kenya achieved in recent years and debt remains elevated.”
The lender says Kenyan authorities have taken strong efforts to achieve the planned deficit path in a highly uncertain policymaking environment. Kenya met the fiscal balance target at the end of March by a wide margin and had fully implemented planned tax policy measures, although with continuing pressures from the pandemic, tax revenue yields were slightly below expectations.
IMF notes that the EFF and ECF program recognises the central importance of having delivered on policy actions, even as tax yields remain uncertain in the near term.
“The Financial Year 2021/2022 budget proposal is being aligned with the authorities’ ambitious multi-year plan to reduce debt-related vulnerabilities and it secures resources to support social spending.”
Kenya is also required to develop a strategy to assess and manage risks to the budget from state-owned enterprises (SOEs).
Kenya has also made commitments to increase transparency and fight corruption. IMF says the country has promised to shortly publish an audit of all Covid-related expenditures in Financial Year 2019/2020.
“They are also strengthening public accountability, and the public procurement portal should soon publicise comprehensive information on all firms that win procurement contracts, including the names of their beneficial owners,” the IMF said adding that the country also plans to adopt a common payroll system at the national and county level to help contain spending growth and limit the scope for corruption.
“The Central Bank of Kenya (CBK) plans to capitalise on the improving outlook by setting out its strategy to strengthen Kenya’s monetary policy framework, supporting its flexible inflation targeting regime. The CBK’s continued close attention to financial sector soundness will reinforce banks’ ability to support the recovery.”
The IMF team met with the National Treasury Cabinet Secretary Ukur Yatani, the Central Bank of Kenya (CBK) Governor Patrick Njoroge, the Deputy Chief of Staff, Executive Office of the President, Mrs. Ruth Kagia, the Principal Secretary for the National Treasury Julius Muia, Deputy CBK Governor Sheila M’Mbijjewe and other senior government and CBK officials.
The IMF team also met with representatives of the Parliamentary Budget Office, the private sector, civil society organizations, and development partners.