The US government has revealed that emergency loans from the International Monetary Fund (IMF) cushioned Kenya’s economy from near collapse amid protests from Kenyans over the mounting public debt.
US Treasury Secretary Janet Yellen asked the US Congress to continue providing support to the IMF, citing its involvement in Kenya in the wake of Covid-19 economic hardships, which triggered layoffs, pay cuts and business closures.
Ms Yelllen made the comments last Friday while pushing Congress to approve a Sh503 billion for international plans under institutions like the IMF.
The US had taken notice of public outcry in Kenya over a series of loans the country had received from the IMF, triggering street protests in response to what they term the government’s growing appetite for debt.
“IMF lending helped Kenya avert a financial crisis and put its economy back on a path to financial sustainability,” said the US Treasury boss.
“The pandemic hit Kenya’s economy hard, worsening preexisting financial vulnerabilities and debt risks. These efforts have helped the Kenyan economy rebound from the Covid-19 shock and stage an economic recovery, with growth expected at nearly six percent in both 2021 and 2022.”
The US is the largest shareholder at the IMF and wields enormous influence in the Bretton Woods institution’s decisions.
Kenya’s economy dipped by 0.3 percent in 2020, hit by the economic fallout of Covid-19, compared to 5.0 percent growth in 2019.
The pandemic hit Kenya’s revenues and limited access to commercial loan markets, forcing the country to turn to the World Bank and the IMF for direct budgetary financing.
The IMF gave Kenya Sh173 billion between March 2020, when the first case of Covid-19 case was reported in the country, and December last year.
“The IMF lent Kenya $740 million in rapid emergency financing, which delivered much-needed liquidity support…In April 2021 the IMF also approved a $2 billion, three-year IMF programme —primarily funded through the PRGT [poverty reduction and growth trust] — to help Kenya’s economy sustainably recover from the scars of the pandemic,” said the US Treasury.
Kenya had kept away from direct budget funding from institutions like the IMF and the World Bank during former President Mwai Kibaki’s administration, with much of the money coming in the form of project support.
But the country’s deteriorating cash flow situation at the peak of the pandemic, marked by falling revenues and worsening debt service obligations, has forced the country to return to these loans, which have conditions attached to them.
President Uhuru Kenyatta, who took the helm in 2013, has overseen a jump in public borrowing.
Total debt stands at 70 percent of gross domestic product (GDP), up from about 45 percent when he took over -- a surge that some politicians and economists say is saddling future generations with too much debt.
The government has defended the increased borrowing, saying the country must invest in infrastructure, including roads and railways.
Kenya agreed with the IMF to stick to concessional finance to reduce debt vulnerabilities that have seen the country turn away from syndicated loans and only focus on multilateral loans and Eurobonds.
Kenya is trying to balance its debt portfolio after a surge of commercial debts piled up and became expensive to repay, taking up more than 63 percent of tax revenue.
Concessional and semi-concessional borrowing, including from the IMF and other multilaterals, is part of the Treasury plan’ to limit reliance on external commercial loans in the coming years to reduce debt-related vulnerabilities.
The cheaper World Bank and the IMF loans have reduced the average cost of Kenyan loans from 9.1 percent to 6.9 percent, according to Parliament Budget Office.
The multilateral loans are relatively cheaper, long-term and have a grace period when Kenya will not be required to pay as they clear the bad expensive loans.