Kenya is in deep talks with the International Monetary Fund (IMF) over the access of emergency bail out loans over the next three and a half years, the institution has revealed.
In a statement published on Friday night following a three-week virtual meeting, the IMF says there is a broad agreement on the key principles underpinning Kenya’s access to the emergency funds.
“There is broad agreement on the key principles that could underpin a Fund supported program to help the next phase of the country’s COVID-19 response and a strong multi-year effort to stabilize and begin reducing debt levels. Discussions will continue in the period ahead,” the IMF stated.
The new funding to be accessed via the IMF Extended Credit Facility (ECF) which provides assistance to countries with protracted balance of payments problems is expected to support the country’s next phase of COVID-19 response.
While the IMF notes the Kenyan economy has been picking up from deep disruptions witnessed across April and May, the multilateral lender equally notes the normally resilient services sector continue to face challenges with their outlook remaining uncertain.
“The program would provide resources to protect vulnerable groups and would reduce debt vulnerabilities over time through a multi-year fiscal consolidation centred on raising tax revenues. It would also advance the structural reform and governance agenda and address weaknesses in some SOEs that have been exacerbated by the COVID-19 shock,” stated Mary Goodman, IMF’s staff lead in Kenya’s virtual mission.
“Finally, it would strengthen the monetary policy framework and support financial stability. The program design would incorporate elements of flexibility to accommodate the high uncertainty about the evolution of COVID-19 and the path of economic recovery.”
The team which meet with keynote fiscal and monetary agents including Treasury Cabinet Secretary Ukur Yatani and Central Bank of Kenya (CBK) Governor Patrick Njoroge noted down pending matters to results before concluding on the ECF arrangement.
This include the scope of weaknesses in State owned enterprises (SOEs), revisions to the 2020/21 budget and some elements of Kenya’s medium term strategy.
The IMF did not however reveal the strings attached to Kenya’s access of the emergency loans on the back of controversy that has seen Treasury Cabinet Secretary Ukur Yatani denounce the facility’s attachment to a debt service suspension initiative (DSSI).
On Wednesday, CS Yatani told Reuters that Kenya had taken a U-turn and that it now wanted to take part in the coronavirus debt relief initiative by the G20 that would see it defer Ksh.75.6 billion ($690 million) in debt payments.
Both the IMF and the World Bank were reported to be the forcing hand behind Kenya’s reversal with its participation in the DSSI being seen as a pre-requisite to access emergency loans.
However, Treasury CS Ukur Yatani fought the reports terming them as unfold allegations in a statement issued on Friday afternoon even as he admitted to be in advanced talks with the IMF over a policy to anchor a rebound in growth.
“Kenya has not applied for the G20 DSSI. Some countries have faced challenges re-arranging debt service with creditors with undesirable outcomes. In this respect, Kenya seeks a cautious approach in evaluating the costs and benefits of the offer and make informed decision to safeguard the economic and financial standing of the country,” he said.
The DSSI refers to a program that sees official bilateral creditors suspend debt service payments from the poorest countries- a list that includes Kenya with an initial timeframe of June 2021.
The program is seen as one allowing low-income countries to concentrate their resources in fighting the pandemic.
Kenya has turned to the multilateral lenders to fund its expanding budget deficit during the pandemic and received Ksh.78 billion ($739 million) and Ksh.107 billion ($1 billion) from the IMF’s rapid credit facility (RCF) and the World Bank development program operations (DPO) earlier this year.
Kenya plans to take out another Ksh.150 billion ($1.4 billion) loan from the World Bank’s DPO before the end of June 2021.
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