IMF Reaches Staff Level Agreement with Kenya on the Fifth Reviews of the Extended Fund Facility and Extended Credit Facility Arrangements and the Resilience and Sustainability Facility
IMF News, May 23, 2023
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- Published: May 23, 2023
Staff mission and scope
- A staff team from the International Monetary Fund (IMF), led by Haimanot Teferra, visited Nairobi during May 9 – 22, 2023 for the fifth reviews of Kenya’s economic program supported by the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF).
- The mission also considered Kenya’s request for access under the IMF’s Resilience and Sustainability Facility (RSF) and further augmentation under the EFF/ECF.
Key agreements reached at staff level
- Staff-level agreement on:
- the fifth reviews of Kenya’s economic program under the EFF and ECF arrangements;
- an augmentation of access under the EFF/ECF totaling 75 percent of quota (SDR407.1 million, about US$544.3 million);
- an extension of the duration of the EFF/ECF arrangements by 10 months to April 2025;
- a new 20-month Resilience and Sustainability Facility (RSF) arrangement with access also of 75 percent of quota that will run in parallel with the EFF/ECF arrangements until April 2025.
- Agreement is subject to IMF management approval and consideration by the Executive Board, which are expected in July.
- Upon completion of the fifth reviews by the IMF Executive Board, Kenya would have immediate access to SDR306.7 million (about US$410 million), including from the augmentation of access under the ECF/EFF.
Financial commitments and totals
- Original arrangements (including augmentation at the time of the fourth reviews) provide access to a total amount of SDR1.818 billion (about US$2.43 billion at current exchange rate).
- Upon completion of the fifth reviews and disbursement noted above, total IMF financial support disbursed under the EFF and ECF arrangements would be SDR1,509 million (about US$ 2,017 million).
- With the EFF/ECF augmentations and the RSF support, the total IMF commitment under these arrangements would be SDR2.633 billion (about US$3.52 billion).
Recent macroeconomic performance and outlook
- Real GDP growth remained robust at 4.8 percent in 2022 despite a contraction in agriculture as the country experienced the worst drought in decades.
- Inflation declined to 7.9 percent in April but remains above the target range.
- The government budget has been under pressure from shortfalls in revenue collection and challenging financing conditions.
- The functioning of the foreign exchange is gradually improving.
Policy assessment and recommendations
- Fiscal policy:
- Planned fiscal consolidation is appropriate, while protecting priority social spending.
- The draft FY2023/24 budget submitted to Parliament proposes to further reduce the deficit from 5.7 to 4.1 percent of GDP, with significant new revenue measures consistent with the objective of reducing the ratio of debt to GDP.
- Government spending execution has been prudent this fiscal year, consistent with available resources.
- The budget targets for FY2023/24 will require careful control of commitments.
- It will also be important to make inroads on the agenda to reform state-owned enterprises and stop the drain on budget resources stemming from, among others, Kenya Airways and Kenya Power and Lighting Company.
- Monetary and exchange rate policy:
- Exchange rate flexibility and proactive monetary policy will remain critical to preserving macroeconomic stability and supporting market confidence.
- Monetary policy has been tightened, with the central bank policy rate having been increased by 250 basis points over the past year.
- Further actions to bring back liquidity to the interbank market for foreign exchange and support exchange rate flexibility are instrumental to secure effective market functioning and backstop the external position.
- Structural and governance reforms:
- Advancing structural and governance reforms and sustaining efforts to build climate resilience will help support macroeconomic stability.
- The policy actions underway in these areas will take some time to bear fruit but will support a favorable medium-term outlook.
Resilience and Sustainability Facility (RSF) — climate-related priorities
- The RSF will help bolster long-term structural climate resiliency and adaptation, while also strengthening macroeconomic stability as the economy transitions toward renewable energy.
- Reforms under the proposed program will include:
- integrating climate-related considerations into budget preparation and public investment frameworks;
- embedding management of climate risks, including in the financial sector;
- enhancing early warning systems.
- These reforms are expected to catalyze climate finance and build on Kenya’s commitments under the Paris Agreement.
Meetings and consultations
- The staff team met with President William Ruto; Cabinet Secretary for the National Treasury & Economic Planning, Prof. Njuguna Ndung’u; Governor of the Central Bank of Kenya (CBK), Dr. Patrick Njoroge; the Principal Secretary for the National Treasury, Dr. Chris Kiptoo; Deputy Governors of the CBK, Ms. Sheila M’Mbijjewe and Dr. Susan Koech; members of the National Economic Council; and other senior government and CBK officials.
- Staff also had discussions with a range of government agencies, the private sector, civil society organizations, and development partners.
IMF Communications Department — Press Release No. 23/171