Economy

IMF loans to Kenya triple to Sh336bn underfunding plan

money

Kenya’s diaspora remittances have continued to grow with projections indicating a new record high for 2023. FILE PHOTO | POOL

Loans tapped from the International Monetary Fund (IMF) have tripled to Sh335.5 billion as of June this year from January 2021, mirroring the effect of Kenya’s multi-year credit facility with the multilateral lender.

The notable increase from Sh111.3 billion in January 2021 comes slightly over two years since Kenya reached a 48-month arrangement with the Fund under its Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements in February 2021.

According to data from the Treasury, the share of IMF funding to total multilateral loans has risen from 7.39 percent to 12.64 percent over the period.

Read: IMF to wire Sh58.8 billion loan to Kenya

Funding from the IMF is expected to continue increasing as the Washington-based institution makes further disbursements under these programmes.

Currently, IMF staff are on a mission to Kenya for the sixth review of the arrangement that will set the stage for further disbursements from the fund in December.

The delegation has met President William Ruto, Treasury officials, and the Central Bank of Kenya (CBK) Governor Kamau Thugge ahead of a staff-level agreement on the review later this month.

In its last review, the IMF unlocked Sh63 billion ($415.4 million) including Sh16.7 billion ($110.3 million) from augmentation of access.

The IMF Executive Board also approved a 20-month arrangement under the Resilience and Sustainability Facility which totals Sh83.7 billion ($551.4 million) to support Kenya’s resilience to climate change and catalyse further private climate financing.

Moreover, the board approved the extension of the EFF/ECF arrangements from 38 to 48 months, up to April 1, 2025, to allow sufficient time to implement the authorities’ reform agenda.

In making the approvals, the IMF highlighted the resilience of the Kenyan economy alongside actions to realise fiscal consolidation and revenue growth.

“Kenya’s economy has been resilient despite the worst drought in many decades and a difficult external environment. The ECF and EFF arrangements continue to support the authorities’ efforts to address emerging challenges to sustain macroeconomic stability and market confidence, promote growth and advance ongoing reforms,” noted IMF deputy managing director Antoinette Sayeh.

“The approval of the financial year 2023/24 budget and 2023 Finance Act are crucial steps to support ongoing consolidation efforts to reduce debt vulnerabilities while protecting social and development expenditures.”

Total disbursements under the EFF/ECF arrangements so far totalled Sh309.7 billion ($2.04 billion).

Kenya’s programme with the IMF is aimed at addressing debt vulnerabilities while supporting the country’s response to Covid-19 and global shocks and enhancing governance and broader economic reforms.

Read: Why voices are rising against IMF-backed austerity drive

The IMF expects the Kenyan economy to grow by five percent this year from 4.8 percent in 2022 while inflation is expected to settle within the government’s upper limit of 7.5 percent in the medium term.

Despite the rise in borrowings from the IMF, funding from the World Bank remains the leading source of multilateral loans to Kenya.

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