IMF Executive Board Completes the Third Reviews of the ECF and EFF Arrangements for Kenya Providing a US$235.6 Million Disbursement

IMF News, July 18, 2022

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Canonical URL: IMF Executive Board Completes the Third Reviews of the ECF and EFF Arrangements for Kenya Providing a US$235.6 Million Disbursement

The Executive Board completed the Third reviews under the 38-month arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF).
Immediate disbursement of SDR 179.13 million (about US$235.6 million), usable for budget support.
This disbursement brings Kenya’s total disbursements for budget support so far to about US$1,208.2 million.
Kenya’s EFF/ECF arrangements total SDR 1.655 billion (305 percent of quota or about US$2.34 billion at the time of program approval on April 2, 2021).

Kenya’s economy is projected to grow 5.7 percent in 2022.
Inflation moved above the Central Bank of Kenya’s (CBK) official target band of 2.5 percent to 7.5 percent in June and is expected to peak this year before easing back within the band in early 2023.
Downside risks predominate in the near-term, including:
- spillovers from the war in Ukraine,
- continuing drought in the semi-arid regions,
- unsettled global financial market conditions,
- the political calendar.
Kenya’s medium-term outlook remains favorable.

Very strong tax performance in fiscal year 2021/22 has created fiscal space to temporarily cushion part of the impact of rising international fuel prices while still meeting program targets.
Program targets at the Second Reviews accommodated emergency spending needs for drought in the semi-arid regions and security.
The approved fiscal year 2022/23 budget:
- broadens tax collection,
- maintains careful expenditure control,
- protects social spending.
Policy recommendations and priorities highlighted:
- Sustain fiscal consolidation efforts to reduce debt vulnerabilities while securing space for needed social and development spending.
- Further improve spending efficiency.
- Undertake additional tax policy and revenue administration measures drawing from the forthcoming Medium-Term Revenue Strategy.
- More targeted programs to support vulnerable households should accompany the ongoing review of the fuel pricing mechanism and plans for reforms to ensure pricing actions are always aligned to the approved budget.

The Central Bank of Kenya’s recent monetary policy tightening is welcome.
The CBK should be ready to continue to adjust its stance to limit second-round effects from higher food and fuel prices and to keep inflation expectations well-anchored.
The flexible exchange rate functioned as a shock absorber during the pandemic and should continue to do so, with forex interventions limited to addressing excessive volatility.

Structural reform agenda focused on improving governance has advanced despite some delays.
Oversight of state-owned enterprises is being reinforced.
New tender documents will allow achieving the longstanding goal of publishing beneficial ownership information of successful bidders for public procurements.
An ongoing audit of COVID-19 vaccine spending and the recently completed comprehensive audit of FY2020/21 spending with a focus on COVID-19 spending will improve transparency and enable follow-up by enforcement agencies and other stakeholders.
Further priorities:
- Advance the restructuring of Kenya Airways and restore the long-term viability of Kenya Power and Lighting Company.
- Further improvements in the anti-corruption framework and the AML/CFT agenda.
- Effective follow-up of expenditure audits to enhance transparency and accountability.

Output
- Real GDP growth (%): 2021 Prel. 7.5; 2022 Proj. 5.7; 2023 5.3; 2024 5.5
Prices
- Inflation - average (%): 2021 6.1; 2022 7.3; 2023 6.9; 2024 5.1
Central government finances (fiscal year)1
- Revenue (% GDP): 2021 16.0; 2022 17.5; 2023 17.2; 2024 17.7
- Expenditure (% GDP): 2021 24.2; 2022 25.4; 2023 23.2; 2024 22.2
- Fiscal balance (% GDP): 2021 -8.2; 2022 -7.8; 2023 -5.9; 2024 -4.4
- Public debt (% GDP): 2021 67.8; 2022 70.2; 2023 70.4; 2024 68.7
- External debt (% GDP): 2021 35.3; 2022 36.3; 2023 36.7; 2024 35.9
Money and Credit
- Broad money (% change): 2021 9.7; 2022 13.4; 2023 12.1; 2024 …
- Credit to private sector (% change): 2021 8.6; 2022 13.8; 2023 12.7; 2024 …
- Policy rate, end of period (%): 2021 7.0; 2022 …
Balance of payments
- Current account (% GDP): 2021 -5.5; 2022 -5.3
- Reserves (in months of imports): 2021 4.4; 2022 3.9; 2023 4.2
Exchange rate
- REER (% change): 2021 -2.7

1 Based on fiscal year (i.e., 2021 represents 2020/21).

Source: Kenyan authorities and IMF staff estimates and projections.