IMF Executive Board Completes First Reviews of Kenya’s Expanded EFF and CEF Agreement
Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the first reviews of the extended 38-month agreement 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 US $ 407 million (approximately SDR 285 million), bringing Kenya’s total disbursements for budget support under the agreements to approximately US $ 714.5 million.
Kenya’s EFF and CEF agreements total SDR 1.655 billion (305 percent of quota) or approximately $ 2.34 billion at the time of program approval on April 2 (seePress release 21/98), aim to support Kenya’s agenda to address debt vulnerabilities, support the response to the COVID-19 crisis and improve governance.
Kenya is experiencing an economic recovery despite a recent third wave of COVID-19 infections. Growth is now expected to reach 6.3% in 2021. However, uncertainty and pressures from the pandemic will persist until vaccines become widely available.
Kenya’s economic program aims to reduce debt vulnerability through a multi-year fiscal consolidation effort focused on increasing tax revenues and tight spending controls, while preserving resources to protect vulnerable groups. The proposed budget for fiscal year 21/22 achieves these targets with a reduction of 1.6 percentage point of GDP in the primary balance.
Kenya has also made notable progress in its structural reform and anti-corruption programs. Budget governance and transparency are enhanced by the recent publication of comprehensive audits of COVID-19 spending. As part of their strategy to address the challenges of the state-owned enterprise sector and put enterprises on a financially viable footing, the authorities conducted an in-depth assessment of the financial health of large SOEs facing the most significant risks. . 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 continue to demonstrate a strong commitment to their fiscal reform agenda during this unprecedented global shock. Performance under the FEP / FEC agreements was generally satisfactory despite a difficult environment. The authorities’ agenda lays the foundation for a return to sustainable and inclusive growth and identifies a clear path to reduce debt vulnerabilities, while ensuring space for necessary social and development spending. Going forward, the authorities should continue their consolidation efforts by continuing to improve spending efficiency and take further revenue administration and tax policy measures.
âIt is important to maintain the momentum of the structural reform program. The very substantial progress made in assessing the financial position of public enterprises (SOEs) that present the greatest fiscal risks provides a solid basis for identifying the least costly approaches to address their financial challenges, and should be complemented by efforts to improve public enterprise management more broadly.
âImportant advances are underway on the governance agenda. The recent publication of comprehensive audits of COVID-19-related spending, as well as the upcoming release of information on the beneficial owners of companies that are awarded government contracts, are important steps in strengthening tax transparency and accountability in the use public resources. In the future, effective follow-up by the appropriate institutions of audit findings will be essential.
âThe Central Bank of Kenya (CBK) has provided critical support during a very uncertain time. The stance of monetary policy is expected to remain accommodative as long as inflation and inflation expectations remain firmly within the target range. Maintaining close monitoring of credit risks and provisioning should remain a priority.
âThe program remains subject to significant risks, not least due to uncertainty over the trajectory of the pandemic and potential pressures from the upcoming political calendar. However, Kenya’s medium-term outlook remains positive. Kenya’s strong commitment to its IMF-backed economic program catalyzed financing on favorable terms.
Kenya: Selected Economic Indicators, 2020â23