Washington, DC:
A staff team from the International Monetary Fund (IMF) led by Mary
Goodman, conducted a hybrid mission to Kenya and in Washington DC from
March 31 – April 22 to discuss progress on reforms and the authorities’
policy priorities in the context of the third review of Kenya’s economic
program supported by the IMF’s
Extended Fund Facility
(EFF) and
Extended Credit Facility
(ECF). The arrangements were
approved by the IMF Executive Board on April 2, 2021
, for a total amount of SDR 1.655 billion (US$ 2.34 billion at that time).
At the conclusion of the mission, Ms. Goodman issued the following
statement:
“The IMF staff team and the Kenyan authorities have reached a staff-level
agreement on the third review of Kenya’s economic program under the EFF and
ECF arrangements. The agreement is subject to approval of IMF management
and the Executive Board in the coming weeks. Upon completion of the
Executive Board review, Kenya would have access to SDR 179.13 million
(equivalent to about US$ 244 million), bringing the total IMF financial
support under these arrangements to SDR 865.77 million (equivalent to about
US$ 1,178 million).
“The Kenyan economy has been staging a robust recovery as the effects of
the pandemic wane, and the authorities remain vigilant. Spillovers from the
war in Ukraine are expected to have a modest impact on growth in the near
term, as Kenya’s direct exposure to Russia and Ukraine is relatively
limited. Staff projects growth at 5.7 percent in 2022, reflecting a pickup
in agriculture and continued recovery in services and other sectors. By
mid-April 2022, 30 percent of adults had been fully vaccinated against
COVID-19, up from 5 percent at end-2021. The medium-term outlook remains
favorable, supported by Kenya’s proactive reform efforts, although the
outlook is subject to uncertainty.
“Spillovers from the war in Ukraine are expected to temporarily push up
inflation as domestic retail fuel prices gradually rise to global levels.
The Central Bank of Kenya (CBK) has stated that it stands ready to take
appropriate action to contain second-round effects of higher global prices
on inflation. Exchange rate flexibility has served Kenya well and should
continue to be a shock absorber that will help mitigate the impact of these
external shocks.
“Kenya is on track to meet its fiscal objectives and put debt as a share of
GDP firmly on a downward path. Kenya’s fiscal position has been underpinned
by strong tax revenue performance this year, buoyed by a robust economic
recovery and the important tax policy measures already undertaken as part
of Kenya’s multi-year plan to reduce debt-related vulnerabilities. These
resources bring resilience that will allow cushioning part of the impact of
the sharp increase in global energy and fertilizer prices on households and
businesses while still remaining within the authorities’ fiscal targets for
FY2021/22.
“The FY2022/23 budget carries forward the authorities’ efforts to broaden
tax revenue mobilization and maintain careful expenditure control while
protecting social priority spending. Revenue targets for FY22/23 will be
supported by tax policy changes, including planned custom interventions in
the context of the East African Community, and improvements in tax
administration. In this regard, the authorities will take into account the
need to protect vulnerable groups in light of the recently-increased cost
of living. A medium-term revenue strategy which is under development and
tight spending control will help anchor deficit reduction in the years
ahead.
“The banking sector has remained resilient, supported by steps taken by the
CBK to sustain the economy and help households and businesses navigate the
challenging environment. The CBK is also making progress in strengthening
its monetary policy framework.
“It will be important to maintain the momentum of reforms to tackle
difficulties at financially-troubled state-owned enterprises
(SOEs)—including Kenya Airways (KQ) and the Kenya Power and Lighting
Company (KPLC). At KQ, which had already benefitted from a government
guarantee on a large portion of its debt liabilities, steady progress on
the ongoing restructuring effort will be important to minimize costs to the
Exchequer. At KPLC, crystallizing an action plan to restore KPLC’s
medium-term profitability and fully cover any financing gaps through
end-2023 will likewise be critical to minimize calls on the budget. The
authorities’ plans to implement their Blueprint for Governance Reforms at
the State Corporations will provide a welcome framework to strengthen the
governance of SOEs.
“Kenya is moving forward on its governance and anticorruption agenda.
Revised documents for government tenders, introduced on April 21, 2022,
will enable publication of beneficial ownership information for successful
bidders in government tenders, which will be a requirement going forward.
The special audits being undertaken of COVID-19 vaccination spending up to
end-June 2021 and plans to include a chapter on COVID-19-related spending
in the Auditor General’s comprehensive audit of FY20/21 expenditure should
provide important transparency in the coming months on the government’s
pandemic response.
“The staff team is grateful to the authorities for the candid and
constructive discussions, and for their proactive approach to ensure
success of their economic program supported by the IMF. The team met with
Cabinet Secretary for the National Treasury and Planning, Mr. Ukur Yatani;
Governor of the Central Bank of Kenya (CBK), Dr. Patrick Njoroge; Head of
the Public Service, Dr. Joseph Kinyua; the Principal Secretary for the
National Treasury, Dr. Julius Muia; Deputy Governor of the CBK, Ms. Sheila
M’Mbijjewe; and other senior government and CBK officials. Staff also had
productive discussions with representatives of leading contenders for the
upcoming presidential election, the Parliamentary Budget Office, the
private sector, civil society organizations, and development partners as
part of their usual practice of taking stock of economic conditions at the
country level.”
