Press Release: IMF Executive Board Approves US$209 Million Disbursement to Kenya Under the Exogenous Shocks Facility

IMF News, May 29, 2009

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Canonical URL: Press Release: IMF Executive Board Approves US$209 Million Disbursement to Kenya Under the Exogenous Shocks Facility

The Executive Board of the International Monetary Fund approved an SDR135.7 million (about US$209 million) disbursement under the Exogenous Shocks Facility (ESF) to help Kenya respond to the negative impact of higher food and international fuel and fertilizer costs, and the slowdown in external demand associated with the global financial crisis.
The disbursement was approved under the rapid-access component of the ESF, which provides policy support and financial assistance to low-income countries facing exogenous but temporary shocks. Financing terms are equivalent to a PRGF arrangement and are more concessional than under other IMF emergency lending facilities.

The IMF estimates the adverse effects of these shocks on Kenya’s balance of payments at 4½-7¼ percent of GDP—a cumulative total of US$1.4-$2.2 billion over the 2008/09 and 2009/10 fiscal years.
Economic growth:
- Averaged 6 percent from 2004-2007.
- Estimated at 2 percent in 2008.
- Estimated at 3 percent in 2009.
Food insecurity:
- The number of people affected by food insecurity has risen by 47 percent to around 10 million, according to the government and the United Nations.
Timing and outlook for food supply:
- Substantial increases in maize imports are expected until at least the next food harvest in the third quarter of 2009, which is expected to further erode foreign reserves and increase pressure on the Kenyan shilling.

Drivers of the shock:
- Rising international prices for food, fuel, and fertilizer.
- Falling global demand leading to weaker export growth and lower tourism receipts, remittances and private capital flows.
- Poor rainfall in October-November 2008 which reduced agricultural yields, especially maize.
Domestic macroeconomic effects:
- Weakened balance of payments.
- Threatened macroeconomic stability.
- Reversed progress on poverty reduction made during the previous five years.
- Slower growth, higher inflation, weakened currency, and loss of international reserves.

Monetary and fiscal policy:
- Monetary policy eased to support economic activity.
- Fiscal policy reprioritized and has been accommodating without endangering debt sustainability.
Structural and social measures:
- Actions to strengthen the banking system.
- Focus on improving food distribution to ensure better access to staple foods.
- Working with the World Bank to introduce a well-targeted food subsidy program by the end of 2009.

Near-term policy priorities:
- Reduce inflation.
- Rebuild foreign exchange reserves.
- Strengthen the basis for a return to robust sustainable growth.
- Fiscal policy to provide a stimulus while protecting key infrastructure and social spending and ensuring medium-term debt sustainability.
Structural and governance priorities:
- Strengthen governance by developing an implementation plan for the updated Governance Action Plan.
- Improve public financial management.
- Implement financial sector reforms.
- Introduce a targeted subsidy framework to address the food deficit efficiently.
Risk assessment:
- Significant risks arise from rainfall dependency, a deeper and more prolonged global downturn, and the domestic political situation.
- Economic policies should stand ready to respond if necessary to ensure fiscal sustainability and price stability.

The Executive Board approved Kenya’s request for disbursement under the Rapid-Access Component of the Exogenous Shocks Facility.
Fund support is expected to enable Kenya to close its financing gap while improving the prospects for additional donor support.

Press Release No. 09/191, May 29, 2009.