Press Release: IMF Executive Board Approves New Arrangements for Kenya Totaling US$1.5 billion
IMF News, March 14, 2016
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- Published: March 14, 2016
Approved arrangements and access
- The Executive Board approved a new SDR 709.259 million (about US$989.8 million) 24-month Stand-By Arrangement (SBA).
- The Executive Board approved a SDR 354.629 million (about US$494.9 million) 24-month Standby Credit Facility (SCF).
- Combined access of the new arrangements: SDR 1.06 billion (about US$1.5 billion, or 196 percent of Kenya’s quota).
- Today’s decision would make available SDR 542.8 million (about US$757.5 million) immediately, with the remainder in four tranches upon completion of semi-annual program reviews.
- The Kenyan authorities indicated they will treat both arrangements as precautionary and do not intend to draw on them unless exogenous shocks lead to an actual balance of payments need.
Background and prior arrangements
- The Executive Board completed the second and final reviews under the previous SBA and SCF for Kenya.
- The previous SBA and SCF were initially for 12 months with a combined total access of SDR 488.52 million (about US$688 million) and were approved on February 2, 2015 (see Press Release No. 15/29).
- The prior arrangements were extended until March 15, 2016 on January 27, 2016.
Macroeconomic outlook and vulnerabilities (remarks by Mr. Min Zhu)
- Kenya’s recent growth performance remains robust and the outlook is positive.
- The economy remains vulnerable to shocks, reflecting:
- less favorable global financial market conditions,
- continued security threats,
- potential extreme weather events.
- The new precautionary arrangements would provide a policy anchor for continued macroeconomic and institutional reform and help mitigate the impact of potential exogenous shocks if they were to materialize.
Fiscal policy guidance
- The envisaged reduction of the fiscal deficit by 3 percent of GDP over the next two years through a well-balanced policy mix would:
- maintain space for high-priority infrastructure investments,
- enable greater provision of health and education services in a sustainable manner.
- Continued public financial management reforms—aimed at upgrading efficiency, transparency and accountability—are key to containing risks and to complement envisaged fiscal consolidation.
Monetary policy guidance
- The Central Bank of Kenya is committed to gradually reducing inflation to the mid-point of its target range (5+/- 2.5 percent).
- To achieve their inflation objective, the authorities will:
- align the interbank rates with the policy rate,
- formally announce and implement an interest corridor,
- thereby strengthen the monetary policy transmission mechanisms in the context of a floating exchange rate regime.
Financial sector and crisis preparedness
- The authorities are taking actions to preserve financial stability, including:
- steps to strengthen micro and macro prudential stress testing,
- steps to strengthen the capital adequacy assessment framework,
- development of a legal and operational crisis management system.
Data, governance, and inclusive growth
- Continued improvement in the quality of macroeconomic statistics and strengthening the business climate will be key to:
- promoting transparency,
- supporting evidence-based policy making,
- supporting inclusive growth.
Press Release No. 16/110, March 14, 2016, IMF COMMUNICATIONS DEPARTMENT.