IMF Reaches Staff Level Agreement on the Third Review of the Extended Fund Facility and Extended Credit Facility for Kenya

International Monetary Fund (IMF)
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IMF staff and the Kenyan authorities have reached a staff-level agreement on economic policies to conclude the third reviews of the 38-month EFF/ECF financed program. Kenya would have access to about US$244 million in financing once the review is formally completed by the IMF Executive Board. The economic rebound is underway although global shocks are presenting new challenges in the form of rising global energy, fertilizer, and food prices, which will pressure inflation and create new spending needs. Kenya’s robust program performance is delivering resilience that is helping the country navigate these global shocks while remaining within the authorities’ targets and continuing to make progress in addressing debt vulnerabilities.

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.”

Distributed by APO Group on behalf of International Monetary Fund (IMF).

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