The Executive Board of the International Monetary Fund (IMF) has approved an aggregate immediate disbursement of about $258.1 million, bringing Kenya’s total disbursements for budget support under the arrangements to $972.6 million.
The is after the international financial institution completed the 2021 Article IV Consultation and the Second reviews of the 38-month Extended Arrangement under the Extended Fund Facility (EFF) and 38-month arrangement under Extended Credit Facility (ECF) for Kenya.
Kenya’s EFF/ECF arrangements for a total of $2.34 billion at the time of programme approval on April 2, 2021 are aimed at supporting Kenya’s programme to address debt vulnerabilities and their response to the Covid-19 pandemic and at enhancing governance.
IMF Deputy Managing Director and Acting Chairperson Antoinette Sayeh said Kenyan authorities have continued to show strong commitment to their reform agenda in a challenging environment and are acting to reduce debt vulnerabilities while maintaining support for the economic recovery.
She said the East African country has maintained careful control of government spending to limit the deficit and are taking steps to reform state-owned enterprises (SOEs) to limit pressure on the budget while protecting social programmes.
“The Kenyan authorities remain firmly committed to their economic programme in a challenging environment. The programme performance has been robust. All quantitative targets were met the FY 2020/21 outturn overperformed and all 2021 structural benchmarks are now completed except one,” said Ms Sayeh.
Kenya showed remarkable resilience to the Covid-19 shock in 2020 and is staging an economic recovery. Growth is now estimated to accelerate to 5.9 percent in 2021.
Kenya’s Covid-19 vaccination programme has picked up speed in the second half of 2021, though uncertainty and pandemic-related pressures will persist until vaccinations become widely available but the political calendar is also a source of uncertainty.
Kenya’s economic programme aims to reduce debt vulnerabilities through multi-year fiscal consolidation efforts centered on raising tax revenues and tightly controlling spending, while safeguarding resources to protect vulnerable groups.
Given Kenya’s limited fiscal space, the authorities are proactively managing difficult trade-offs with the view to reduce debt vulnerabilities by rationalising non-priority spending to offset half of the impact of SOE support on the deficit, in line with programme commitments.
Kenya has also made notable advances on its structural reform and anti-corruption agenda.
Fiscal governance and transparency will be bolstered by the authorities’ action plan to address legal impediments that prevented the publication of beneficial ownership information related to public procurements and by planned audits of Covid-19 vaccine spending and of FY20/21 expenditure with a focus on Covid-19-related spending.
As part of their strategy to address challenges in the SOE sector and put firms on a financially viable footing, the authorities are formulating robust restructuring strategies with safeguards to protect the Exchequer’s financial interest. The authorities also plan to further enhance their monetary policy framework and to continue supporting financial stability.
Ms Sayeh urged Kenyan authorities to continue executing their multi-year fiscal consolidation plan to reduce debt vulnerabilities and some additional fiscal space is needed in FY21/22 for emergency spending to face the drought in the north and emerging security needs.
“The planned supplementary budget should also provide resources for expanding Covid-19 vaccinations and SOEs support, in line with program design.
Strengthening domestic revenue mobilisation, maintaining expenditure control while protecting priority social spending and improving spending efficiency will remain essential. Bold political commitment by all levels of government is needed to ensure the FY22/23 budget is aligned with the authorities’ program,” said Deputy managing director.
She added, “Proactive efforts to address fiscal risks from SOEs should continue. Financial support to SOEs will require difficult tradeoffs and adequate safeguards given Kenya’s limited fiscal space and the need to maintain debt sustainability.”
The IMF said further strengthening fiscal transparency and governance requires more proactive efforts by addressing legal impediments to begin publishing beneficial ownership information for awarded public tenders in early 2022, proceed with planned audits of Covid-19 spending, and promptly act to follow up on previous audits.
Well-calibrated Central Bank of Kenya policies have supported economic resilience and the banking sector. The stance of monetary policy should remain accommodative as long as inflation expectations remain well anchored.
“The programme is subject to increasing global and domestic risks, including from the pandemic, tightening global financing conditions, and potential pressures from the upcoming political calendar. Kenya’s medium-term prospects remain positive, and the authorities’ continued commitment to their economic program is essential to maintain macroeconomic balance, while ensuring a more sustainable, greener, and inclusive growth,” read part of IMF statement.