Kenya bags Sh28 billion loan from IMF to cushion Ukraine war effect on economy.
The International Monetary Fund (IMF) has extended a further Sh27.86 billion ($235.6 million) loan to Kenya , bringing the county’s total disbursements for budget support to Sh143.29 billion ($1.2 billion).
According to IMF, the funds will go towards supporting Kenya’s program to address debt vulnerabilities, its response to the Covid-19 pandemic and global shocks resulting from the war in Ukraine.
Antoinette Sayeh, IMF deputy managing director said that Kenya’s economic program supported by the Fund’s Extended Fund Facility and the Extended Credit Facility arrangements is providing an essential policy anchor to debt sustainability and public confidence.
“Despite the resilient economic recovery, the program 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, adding that Kenya’s National Treasuries’ prudent policies and advancing structural reforms remains essential to maintain macroeconomic stability and safeguard Kenya’s positive medium-term prospects.
IMF said the Kenya’s strong fiscal performance is providing a welcome resilience.
However, it pointed out that uncertainties stemming from the war in Ukraine, continuing drought in the semi-arid regions, unsettled global financial market conditions and the political calendar dog Kenya, even as it said Kenya’s medium-term outlook remains favorable.
“Although the authorities are adjusting domestic fuel prices to international levels more gradually, program targets are still being met thanks to strong tax revenues,” she said.
Nevertheless, IMF said that more targeted programs 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. This requires further improving spending efficiency and undertaking additional tax policy and revenue administration measures drawing from the forthcoming Medium-Term Revenue Strategy,” she said.
The Washington-based lender also welcomed the recent Central Bank of Kenya’s (CBK) monetary policy tightening, adding that CBK should stand ready to continue to adjust its stance to limit second-round effects from higher food and fuel prices and to keep inflation expectations well-anchored amid a temporary increase of inflation 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.
IMF has called for the hastening in the restructuring of Kenya Airways and restore the long-term viability of Kenya Power and Lighting Company.
“Further improvements in the anti-corruption framework and the AML/CFT 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 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.
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