IMF Executive Board Approves US$2.34 Billion ECF and EFF Arrangements for Kenya

IMF News, April 2, 2021

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Executive Board approved 38-month arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Kenya equivalent to SDR 1.655 billion (305 percent of quota or about US$2.34 billion).
Approval enables immediate disbursement of about US$307.5 million, usable for budget support.
This follows Fund emergency support to Kenya in May 2020 (100 percent of quota, equivalent to US$739 million at the time of approval).

Kenya likely posted a slight contraction of 0.1 percent in 2020, with the economy picking up heading into 2021.
The COVID-19 shock exacerbated pre-existing fiscal vulnerabilities; past gains in poverty reduction have been reversed.
Medium-term fiscal and balance-of-payments financing needs remain sizable; support from the G-20 under the Debt Service Suspension Initiative (DSSI) and development partners, along with capital market financing, will contribute to closing the 2021 financing gap.

Authorities have taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 percent of GDP, respectively, in this fiscal year.
Kenya’s debt remains sustainable but is at high risk of debt distress.
Program incorporates flexibility to recognize near-term challenges related to tax yields and possible contingent liabilities from the SOE sector.

The three-year financing package will support the next phase of the authorities’ COVID-19 response and the plan to reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups.
Core program elements:
- Reduce debt vulnerabilities through a multi-year fiscal consolidation effort centered on raising tax revenues and tightly controlling spending, while safeguarding social and development spending.
- Advance structural reform and governance agenda, including addressing weaknesses in some state-owned enterprises (SOEs).
- Strengthen transparency and accountability through the anticorruption framework and advance the AML/CFT agenda.
- Strengthen the monetary policy framework and support financial stability.
The program recognizes the need to prioritize revenue administration, spending efficiency, and fiscal transparency.
The Central Bank of Kenya’s (CBK) proactive policy stance should remain accommodative within the inflation targeting regime; the exchange rate should continue to function as a shock absorber; close supervision of credit risks and provisioning should be maintained.

The program provides a strong signal of support and confidence but is subject to notable risks, including uncertainty about the path of the pandemic and the upcoming political calendar.
The program incorporates flexibility to accommodate near-term tax yield challenges and potential SOE contingent liabilities.
Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, emphasized the need for steadfast pursuit of program objectives and noted Kenya’s demonstrated commitment to fiscal reforms during the global shock.

Output
- Real GDP growth (%): 2020 Est. -0.1; 2021 Proj. 7.6; 2022 5.7; 2023 6.1
Prices
- Inflation - average (%): 2020 Est. 5.3; 2021 Proj. 5.0
Central government finances (fiscal year)1
- Revenue (% GDP): 2020 Est. 17.2; 2021 Proj. 17.0; 2022 16.8; 2023 17.6
- Expenditure (% GDP): 2020 Est. 25.0; 2021 Proj. 25.7; 2022 24.3; 2023 23.5
- Fiscal balance (% GDP): 2020 Est. -7.8; 2021 Proj. -8.7; 2022 -7.5; 2023 -5.8
- Public debt (% GDP): 2020 Est. 65.8; 2021 Proj. 70.4; 2022 72.6; 2023 72.9
Money and Credit
- Broad money (% change): 2020 Est. 10.6; 2021 Proj. 11.8; 2022 11.4
- Credit to private sector (% change): 2020 Est. 7.7; 2021 Proj. 7.8; 2022 10.1
- Policy rate, end of period (%): 2020 Est. 7.0; 2021 Proj. …
Balance of payments
- Current account (% GDP): 2020 Est. -4.8; 2021 Proj. -5.3; 2022 -5.4; 2023 -5.5
- Reserves (in months of imports): 2020 Est. 4.6; 2021 Proj. 4.3; 2022 4.1
- External debt (% GDP): 2020 Est. 35.6; 2021 Proj. 37.8; 2022 37.6; 2023 36.7
Exchange rate
- REER (% change): 2020 Est. -1.5

IMF Communications Department, Press Release No. 21/98, April 2, 2021.