IMF Executive Board Completed the Fifth Reviews of Kenya’s Extended Fund Facility and Extended Credit Facility Arrangements and Approves Arrangement under the Resilience and Sustainability Facility

IMF News, July 17, 2023

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Canonical URL: IMF Executive Board Completed the Fifth Reviews of Kenya’s Extended Fund Facility and Extended Credit Facility Arrangements and Approves Arrangement under the Resilience and Sustainability Facility

The Executive Board completed the fifth reviews under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) arrangements for Kenya.
Immediate disbursement authorized: SDR306.7 million (about US$415.4 million), including SDR81.4 million (about US$110.3 million) from augmentation of access.
Total disbursements under the arrangements so far: SDR1.51 billion (about US$2.04 billion).
EFF/ECF arrangements extended from 38 months to 48 months (through April 1, 2025).
Augmentation of access amounting to 75 percent of quota (SDR407.1 million) over the extended program duration for balance of payments support.
Approved modification of program conditionalities, waivers of nonobservance of the continuous performance criteria on accumulation of external arrears and end-June 2023 tax revenue target, and waiver of applicability for all other end-June 2023 and continuous quantitative performance criteria.

Approved RSF arrangement amount: SDR407.1 million (75 percent of quota; about US$551.4 million).
RSF duration: will coincide with the period remaining under the EFF/ECF arrangements, as extended.
RSF objectives:
- Build resilience to climate change and catalyze further private climate financing.
- Integrate climate-related considerations in macro policies and frameworks by adopting green public financial management and climate-sensitive public investment management reforms.
- Introduce carbon pricing.
- Enhance effectiveness of Kenya’s existing frameworks to mobilize climate finance.
- Strengthen disaster risk reduction and management.

Key policy priorities:
- Reducing debt vulnerabilities through multi-year fiscal consolidation.
- Raising tax revenues and rationalizing spending while protecting priority social and developmental spending.
- Maintaining a proactive monetary policy stance as part of a mutually reinforcing prudent set of policies.
Fiscal governance and structural reforms to sustain momentum:
- Strengthen public financial management systems.
- Manage fiscal risks from state-owned enterprises by enhancing their governance and oversight.
- Enhance the anti-corruption framework.
- Address shortcomings in the AML/CFT framework.
- Ensure effective expenditure audits for transparency and accountability.
Monetary policy and reserves:
- Central Bank of Kenya (CBK) commitment to a data dependent policy stance to keep inflation expectations anchored.
- CBK should continue steps to strengthen its reserves position and deepen the FX market, while allowing exchange rate flexibility as a shock absorber.
Contingency planning:
- Recent challenges in resource mobilization and elevated uncertainty call for contingency plans that can be quickly deployed to ringfence fiscal performance.
- Tighter financing conditions require a prudent debt policy and continued efforts to prioritize concessional loans.

Kenya's economy has been resilient despite the worst drought in many decades and a difficult external environment.
ECF and EFF arrangements support efforts to address emerging challenges to sustain macroeconomic stability, market confidence, and promote growth while safeguarding resources for vulnerable groups and developmental needs.
While the medium-term outlook remains positive, near-term global headwinds and elevated inflationary pressures affect economic activity.
Reforms under the RSF program are expected to advance Kenya’s track-record at addressing climate-related challenges and to incorporate climate risks into fiscal planning and the investment framework.

Output
- Real GDP growth (%): 2021 Act. 7.6; 2022 4.8; 2023 Proj. 5.0; 2024 5.3; 2025 5.4; 2026 5.4
Prices
- Inflation – average (in %): 2021 Act. 6.1; 2022 7.8; 2023 Proj. 6.6
Central government finances (fiscal year)1
- Total revenue (% GDP): 2021 Act. 16.1; 2022 17.6; 2023 Proj. 17.7; 2024 18.3; 2025 17.9; 2026 17.9
- Expenditure and net lending (% GDP): 2021 Act. 24.4; 2022 23.8; 2023 Proj. 23.6; 2024 22.6; 2025 22.3; 2026 21.2
- Overall fiscal balance (% GDP): 2021 Act. –8.3; 2022 –6.2; 2023 Proj. –6.0; 2024 –4.3; 2025 –4.0; 2026 –3.3
Public debt
- Gross nominal debt (% GDP): 2021 Act. 68.2; 2022 68.4; 2023 Proj. 70.6; 2024 68.5; 2025 66.9; 2026 65.2
- Gross external debt (% GDP): 2021 Act. 34.7; 2022 34.5; 2023 Proj. 37.9; 2024 37.8; 2025 36.7; 2026 35.5
Money and Credit
- Broad money (% change): 2021 Act. 7.1; 2022 7.5; 2023 Proj. 9.5; 2024 10.3; 2025 11.1
- Credit to private sector (% change): 2021 Act. 8.6; 2022 12.5; 2023 Proj. 12.1; 2024 12.8; 2025 12.4
- Policy rate, end-of-period (%): 2021 Act. 7.0; 2022 8.75; 2023 Proj. …
Balance of payments
- Current account balance (% GDP): 2021 Act. –5.2; 2022 –5.1; 2023 Proj. –4.8; 2024 –5.0
- Gross international reserves (in months of imports): 2021 Act. 4.7; 2022 3.9; 2023 Proj. 3.3; 2024 3.5; 2025 3.7; 2026 3.8
Exchange rate
- REER (% change; positive = appreciation): 2021 Act. –2.6; 2022 2.2

1 Based on fiscal year (i.e., 2023 represents fiscal year 2022/23).

IMF Executive Board press release, July 17, 2023.