IMF completes 2021 Article IV consultation and second review of extended arrangement under the EFF and CEF agreements for Kenya
Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the 2021 Article IV consultationand the second reviews of the 38-month extended arrangement under theExtended financing facility(EFF) and a 38-month agreement underExtended credit facility(ECF) for Kenya. The Board’s decision authorizes a total immediate disbursement of SDR 185 million (approximately US $ 258.1 million), bringing Kenya’s total disbursement for budget support under the agreements to approximately US $ 972.6 million. .
Kenya’s EFF / ECF arrangements total SDR 1.655 billion (305 percent of quota) or approximately US $ 2.34 billion at the time of program approval on April 2, 2021 (seePress release 21/98), aim to support Kenya’s program to address debt vulnerabilities and their response to the COVID-19 pandemic and improve governance.
Kenya has shown remarkable resilience in the face of the COVID shock in 2020 and is in the process of starting an economic recovery. Growth is now expected to accelerate to 5.9% in 2021. Kenya’s COVID-19 vaccination program accelerated in the second half of 2021, although the uncertainty and pressures associated with the pandemic will persist until the next half of the year. ” vaccines become widely available. The political calendar is also a source of uncertainty.
Kenya’s economic program aims to reduce debt vulnerability through multi-year fiscal consolidation efforts focused on increasing tax revenues and tight spending controls, while preserving resources to protect vulnerable groups. The FY21 / 22 budget achieves these objectives. An additional budget is being prepared, in line with the flexibility built into the EFF / ECF agreements, to expand the authorities’ COVID-19 vaccination program, support the SOE reform plan, and execute government spending. emergency related to drought in northern regions and security. Given Kenya’s limited fiscal space, the authorities are proactively managing difficult trade-offs to reduce debt vulnerabilities by streamlining non-priority spending to offset half of the impact of support to SOEs on the economy. deficit, in line with program commitments.
Kenya has also made notable progress in its structural reform and anti-corruption programs. Budget governance and transparency will be strengthened by the authorities’ action plan to remove legal obstacles that have prevented the publication of information on beneficial owners related to public procurement and by planned audits of expenditure related to COVID-vaccines. 19 and fiscal year 20/21 spending with a focus on COVID-19. -19 related expenses. As part of their strategy to meet the challenges of the SOE sector and put companies on a financially viable footing, the authorities are developing strong restructuring strategies backed by guarantees to protect the financial interests of the chessboard. The authorities also plan to further strengthen their monetary policy framework and continue to support financial stability.
Following the Board’s debate, Ms. Antoinette Sayeh, Deputy Managing Director and Acting President, made the following statement:
âThe Kenyan authorities remain firmly committed to their economic agenda in a difficult environment. The performance of the program has been robust. All quantitative targets were met – fiscal year 2020/21 results outperformed – and all 2021 structural benchmarks are now met except one.
âThe authorities should continue to execute their multi-year fiscal consolidation plan to reduce debt vulnerabilities. Additional fiscal space is needed in FY 21/22 for emergency spending to address drought in the north and emerging security needs; the planned additional budget is also expected to provide resources to expand COVID-19 vaccinations and support to public enterprises, in accordance with the program design. Strengthening domestic revenue mobilization, maintaining expenditure controls while protecting priority social spending and improving spending efficiency will remain essential. Bold political commitment from all levels of government is needed to ensure that the fiscal year 22/23 budget is aligned with the authorities’ agenda.
âProactive efforts to address the fiscal risks of SOEs should continue. Financial support for SOEs will require difficult tradeoffs and adequate collateral given Kenya’s limited fiscal space and the need to maintain debt sustainability.
âStrengthening budget transparency and governance requires more proactive efforts. Authorities should remove legal hurdles to start publishing information on beneficial owners for public tenders awarded in early 2022, conduct planned audits of COVID-19-related spending, and act quickly to follow up on audits previous ones.
âThe well-calibrated policies of the Central Bank of Kenya have supported economic resilience and the banking sector. The stance of monetary policy should remain accommodative as long as inflation expectations remain firmly anchored.
âThe program is subject to increasing global and national risks, including from the pandemic, tighter global funding conditions and potential pressures from the upcoming political calendar. Kenya’s medium-term outlook remains positive and the authorities’ continued commitment to their economic program is essential to maintain macroeconomic balance, while ensuring more sustainable, greener and inclusive growth.
Table 1. Kenya: Selected Economic Indicators, 2020-23
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with its members, usually annually. A team of employees visits the country, collects economic and financial information and discusses with those responsible for the development and economic policies of the country. Back at headquarters, the staff prepare a report, which forms the basis for the Board’s discussion.