Kenya has landed a 2.4 billion US dollars (about 262 billion Kenyan shillings) deal with the International Monetary fund (IMF) to facilitate recovery from the Covid 19 pandemic.
The fund is to dispense a 38-month staff level financing package for the economy under its Extended Fund Facility(EFF) and Extended Credit Facility (ECF) arrangements.
The agreement is still subject to the fund’s management approval and the executive board consideration expected in the coming weeks.
“The program will support the next phase of the country’s Covid-19 response and the authorities’ plans for a strong multi-year effort to stabilise and begin reducing debt levels relative to GDP,” Mary Goodman who led the IMF mission to Kenya said in a statement issued in Nairobi
The pandemic immensely damaged East Africa’s largest economy, hitting tax revenue as movement restrictions weighed on activity.
The fiscal deficit may widen to 8.9% of GDP this year as the government borrows more to enhance economic recovery and support businesses and households.
The IMF. which conducted virtual missions to Kenya from December 9 to December 17 and concluded the assessments between February 4 and February 15, said the Kenyan economy is picking up from an anomalous shock suffered as a result of the COVID-19 pandemic.
The team met with Treasury Cabinet Secretary Ukur Yatani, Central Bank of Kenya (CBK) Governor Patrick Njoroge, Head of Public Service Joseph Kinyua among other government officials.
The Treasury urged lawmakers to lift the statutory debt ceiling to above 9 trillion shillings ($82.2 billion) to accommodate anticipated funding gaps from the fiscal year starting in July.
Public debt stood at 7.28 trillion shillings by end of December, equivalent to 65.6% of GDP in nominal terms.
According to the IMF, the program aims at reducing debt vulnerabilities centred on raising tax revenues and tight control of spending.
The IMF expounded in its statement that the decision to pause fiscal adjustment this year would allow accommodating health, social, and development spending to support the recovery, complemented by accommodating monetary policy.
“The authorities’ program aims at reducing debt vulnerabilities through a multi-year fiscal consolidation effort, centred on raising tax revenues and tight control of spending, which would safeguard resources to protect vulnerable groups.
“It would also advance the structural reform and governance agenda, including by addressing weaknesses in some SOEs and ongoing efforts to strengthen transparency and accountability through the anti-corruption framework,” the statement highlighted
The disbursements are expected to be done in three parts: across the 2020/21 financial year ending in June to the 2022/23 fiscal year.
Kenya expects other funding from her multi-lateral lenders which include Ksh82.5 billion from the World Bank Development Policy Operations (DPO) and Ksh13.8 billion from the African Development Bank (AfDB).
Last year, Kenya re-integrated IMF funding into its budget having received a Ksh.0.9 billion ($739 million) RCF loan facility in May.
The agreement comes after Kenya has begun reversing some of the measures introduced to cushion the economy. Temporary personal and corporate tax cuts were discontinued at end-December to help shore up collections. Small businesses, however, still benefit from some tax and debt relief arrangements.