IMF Staff Completes Virtual Mission to Kenya

IMF News, November 20, 2020

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A staff team from the International Monetary Fund (IMF) led by Mary Goodman conducted a virtual mission to Kenya from October 27 to November 17, 2020, to undertake negotiations on a 3½ year Extended Fund Facility (EFF)/Extended Credit Facility (ECF) arrangement.
End-of-mission statement conveys preliminary findings; views are those of IMF staff and do not necessarily represent the IMF’s Executive Board.
Technical work will continue with a view to reaching agreement on a program that could be presented to the Fund’s Board in early 2021.

Kenya has suffered an unprecedented shock as a result of the COVID-19 pandemic.
Real GDP contracted by 5.7 percent year-on-year in the second quarter of 2020.
Economic activity started to show signs of recovery from the trough in April-May, but the services sector suffered a significant contraction in output.
Remaining sectoral weaknesses include tourism and education.
Agriculture remained strong thanks to above-average rainfall.
External accounts have remained resilient due to solid growth in goods exports (particularly horticulture and tea), remittances, and reduced imports partly resulting from lower oil prices.
Inflation has remained in check at 4.8% year-on-year in October.
Financial sector vulnerabilities have been contained and the banking system remains well capitalized overall.
Key challenges: reduced government tax revenue and rising public debt, which reached 65.9 percent of GDP in FY19/20.

The mission discussed a program to support the next phase of Kenya’s COVID-19 response with the following core elements:
- Provide resources to protect vulnerable groups.
- Reduce debt vulnerabilities over time through a multi-year fiscal consolidation centered on raising tax revenues.
- Advance structural reform and governance agenda and address weaknesses in some state-owned enterprises (SOEs) exacerbated by the COVID-19 shock.
- Strengthen the monetary policy framework and support financial stability.
- Incorporate elements of flexibility in program design to accommodate high uncertainty about the evolution of COVID-19 and the path of economic recovery.
There is broad agreement on the policy objectives that would underpin a Fund-supported program.
Remaining issues to firm up include:
- The scope of SOE weaknesses.
- Plans to revise the budget for FY2020/21 to address these and other pressure points.
- Some elements of the medium-term strategy.

Discussions will continue in the period ahead; technical work will continue with a view to reaching agreement on a program for Board consideration in early 2021.
The mission thanked the authorities for hospitality and constructive discussions.
The team met with:
- Cabinet Secretary for the National Treasury, Mr. Ukur Yatani;
- Governor of the Central Bank of Kenya (CBK), Dr. Patrick Njoroge;
- Head of the Public Service, Mr. Joseph Kinyua;
- Principal Secretary for the National Treasury, Dr. Julius Muia;
- Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe;
- Auditor General, Ms. Nancy Gathungu;
- Other senior government and CBK officials, private sector representatives, civil society organizations, and development partners.

Press Release No. 20/351, November 20, 2020.