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What is the new program?

Kenya has large financing needs on account of the adverse effects that the COVID-19 pandemic has created.

The government has developed a medium-term reform program to address the challenges, articulated by the fiscal framework laid out in the recent Budget Policy Statement.

The IMF is providing policy advice and financing to support the government’s program.

What are the goals of Kenya’s new program?

The central objective of the program, supported by arrangements under the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF), is to gradually stabilize public debt. The budget deficit will be reduced overtime (as the COVID-19 shock eases) through a combination of revenue mobilization and spending rationalization measures.

This gradual approach is needed to strike a balance between near-term support for the economy and laying the ground for durable and inclusive growth over the years to come. Absent such a strong multi-year approach to contain debt and debt vulnerabilities, there will not be sufficient resources in the near-term to support vulnerable groups or much needed higher spending in areas like health.

The program also includes measures to promote greater transparency in public accounts, strengthen the anticorruption framework, and addressing weaknesses in some state-owned enterprises.

More details of the authorities’ program can be found in the Staff Report.

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How will Kenya’s new IMF program advance the governance and anti-corruption agenda?

Promoting good governance remains an essential part of the Fund’s engagement with the Kenyan authorities.

Notably, the authorities’ program contains specific commitments to safeguard public resources and enhance transparency and accountability to reduce corruption risks. Key elements include:

  • promotion of fiscal transparency via publishing procurement information including beneficial ownership data of companies that are awarded contracts;
  • publication of an audit of all COVID-19 related expenditures in FY19/20;
  • a review of the current legal framework for asset declarations of senior public officials and conflict of interest rules.
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    Does it make sense for the IMF to lend to Kenya and increase its debt burden when the country is already at high risk of debt distress?

    A central focus of the authorities’ program supported by the EFF/ECF arrangements is a strong multi-year effort to reduce debt and debt vulnerabilities, laying the ground for durable and inclusive growth over the years to come.

    The authorities intend to resume fiscal consolidation as the COVID-19 crisis abates through a combination of revenue mobilization and spending rationalization measures. Their program would bring the overall fiscal deficit below 4 percent of GDP by FY24/25 helping put the debt level (debt/GDP) on a downward trajectory.

    The USD 2.34 billion EFF/ECF arrangements with the IMF – together with additional financing from development partners and capital markets and G-20 support under the Debt Service Suspension Initiative (DSSI) – will help meet Kenya’s significant medium-term financing needs including to support their COVID-19 response. The alternative to this financing is much sharper fiscal consolidation or much more expensive borrowing on commercial terms.