Kenya is set to receive Kes52.7 billion (US$433 million) from the International Monetary Fund (IMF) in fresh disbursement from the global lender’s 38-month loan plan agreed upon in April last year.
The latest drawdown follows 4th review of the country’s extended fund and credit facilities and is meant to help address Kenya’s debt vulnerabilities and quell pressures such as volatile global commodity prices, tighter external financing conditions, high inflation, the slowdown in growth, and the ongoing persistent drought.
In its report, the multilateral lender issued a favourable appraisal of the Kenyan economy, which has been resilient in the face of headwinds induced by high oil and food prices.
The IMF commended President William Ruto’s new government for instituting decisive measures to expand its fiscal space.
“There has been good progress on fiscal adjustment needed to address debt vulnerabilities though pressures remain elevated. The overall deficit on a cash basis declined from 8.2 percent of GDP in FY 2020/21 to 6.2 percent of GDP in FY 2021/22. This was supported by strong tax revenue, which increased from 12.6 to 13.7 percent of GDP,” said the IMF.
Despite a slump in agricultural output which considerably contributes to the national Gross Domestic Product (GDP), Kenya’s economy grew by six percent year-on-year in the first half of 2022, supported by robust services sector activity.
“Higher food and energy prices have pushed up inflation and pressured the external position. At the same time, the peaceful completion of elections has lifted uncertainty and credit to the private sector is expanding,” the IMF noted.
The IMF projects 5.3 percent growth in 2022 amid domestic policy tightening and a global slowdown that are likely to also weigh on growth in 2023.
The IMF lauded the government for taking “forceful measures” aimed at reducing the budget deficit; the near elimination of fuel subsidies in September and the reinstatement of variable cost adjustments in electricity prices as cases in point.
Additionally, the IMF termed the formulation of a supplementary budget for FY 2022/23 with a view to institute significant spending cuts and modestly reduce the deficit from the previously programed level of 5.9 percent of GDP a step in the right direction.
The lender urged the new administration to move ahead with structural and governance reforms, including completing efforts underway to publish beneficial ownership information for awarded government contracts, which will be a major step towards greater transparency and accountability.
“Reform of financially-troubled state-owned enterprises—including Kenya Airways and Kenya Power and Lighting Company will also be key.”
In their assessment of the country’s state of the economy, the IMF team met with President William Ruto; Cabinet Secretary for the National Treasury and Planning, Prof Njuguna Ndung’u; Governor of the Central Bank of Kenya (CBK), Dr Patrick Njoroge; the Principal Secretary for the National Treasury, Dr Julius Muia; Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe; members of the Dr David Ndii-led Economic Council; and other senior government and CBK officials.