The International Monetary Fund(IMF) said on Monday that its staff had reached an agreement with Kenyan authorities on policies to complete the third review of Kenya’s loan programme, paving the way for a Sh28.2 billion ($244 million) disbursement.
The loan, which is subject to the approval of the IMF Executive Board in the coming weeks, would be the third instalment of a deal signed between Kenya and the lender.
The IMF in April last year approved a 38-month loan arrangement of Sh264.18 billion for Kenya under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) to help respond to the economic shocks of the Covid-19 pandemic.
The type of credit Kenya sought from the IMF is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.
The new loan pushed Kenya’s IMF debt to Sh138.2 billion over the past year. The lender approved a total of Sh110 billion last year.
“The IMF staff team and the Kenyan authorities have reached a staff-level agreement on the third review of Kenya’s economic programme under the EFF and ECF arrangements,” IMF Mission Chief to Kenya Mary Goodman said in a statement on Monday.
The lender has warned that the effects of the ongoing war between Russia and Ukraine will continue to be felt by households due to a rise in the cost of basic commodities.
The conflict has seen fuel prices at the pump rise to historic highs this month while shortages of basic commodities such as cooking oil and wheat are predicted to persist, pushing up their prices.
“Spillovers from the war in Ukraine are expected to temporarily push up inflation as domestic retail fuel prices gradually rise to global levels,” the IMF said.
However, the lender has exuded confidence in Kenya’s economic growth over the waning effects of Covid-19, adding that the effect of the war on its economy will be “modest” in the near term.
“The Kenyan economy has been staging a robust recovery as the effects of the pandemic wane, and the authorities remain vigilant. Spillovers from the war in Ukraine are expected to have a modest impact on growth in the near term, as Kenya’s direct exposure to Russia and Ukraine is relatively limited,” the lender said.
The IMF predicts Kenya’s economy to grow 5.7 per cent this year, driven by the recovering services sector such as tourism and trade that had been decimated by the pandemic, as well as growth in the agriculture sector, which contributes about a third of the economy.
The economic recovery is driven by the lifting of Covid-19 containment measures such as the dusk-to-dawn curfew in recent months, as well as movement restrictions even as full vaccination against the disease is estimated to have been rolled out to about 30 per cent of adults by the end of this month.
The lender said Kenya is on track to meet its fiscal reform objectives such as in financially struggling state-owned entities to make them efficient and less reliant on state funding, reduction of the public debt as a share of the gross domestic product (GDP) and reforms in public procurement.
“Kenya is on track to meet its fiscal objectives and put debt as a share of GDP firmly on a downward path. Kenya’s fiscal position has been underpinned by strong tax revenue performance this year, buoyed by a robust economic recovery and the important tax policy measures already undertaken as part of Kenya’s multi-year plan to reduce debt-related vulnerabilities,” the IMF said.
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