Press Release No. 21/133

IMF Reaches Staff-Level Agreement on the First Review of the Extended Fund Facility and Extended Credit Facility for Kenya

May 17, 2021

• IMF staff and the Kenyan authorities have reached a staff-level agreement on economic policies to conclude the first review of the 38-month EFF/ECF financed program. Kenya would have access to about US$410 million in financing once the review is formally completed by the IMF Executive Board.
• Economic recovery is under way and the easing of the COVID-19 third wave in Kenya suggests activity should continue picking up, but the environment for policy making remains subject to uncertainty.
• The authorities plan to carefully manage spending in the near term to secure resources to support critical economic development and to address debt vulnerabilities, and they will push forward with their agenda to increase transparency and fight corruption.

Washington, DC: A staff team from the International Monetary Fund (IMF) led by Mary Goodman conducted a virtual mission to Kenya from April 29 to May 14, 2021 to discuss progress on reforms and the authorities’ policy priorities within the context of the first review of Kenya’s economic program supported by the IMF’s EFF and ECF arrangements.

At the conclusion of the mission, Ms. Goodman issued the following statement:

“The IMF staff team and the Kenyan authorities have reached a staff-level agreement on the first review of Kenya’s economic program under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF). The agreement is subject to the approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Kenya would have access to SDR 285 million (equivalent to about US$410 million).

“IMF staff commend the authorities’ decisive policy actions to contain the COVID-19 outbreak. Their actions helped to cushion the blow to the economy and maintained the momentum necessary to advance their economic reform agenda. With the easing of the third wave of COVID-19 infections compared to high levels seen into April, containment measures have been lifted. The authorities have also launched a COVID-19 vaccination program, and the IMF program is designed to support Kenya’s efforts to accelerate and expand vaccinations.

“The economic recovery should be sustained, although the persistence of the pandemic suggests the pickup envisioned in 2021 will be slightly less strong than anticipated. IMF staff now project the economy to expand by 6.3 percent in 2021. The coronavirus shock has unfortunately also reversed some of the poverty reduction gains Kenya achieved in recent years and debt remains elevated.

“Nevertheless, it is important to keep in mind that Kenya’s prospects are strong, and in the medium term growth is expected to settle at its potential of just above 6 percent. Overall, the authorities and the IMF agree on the important role the IMF program is playing in supporting Kenya’s long-term economic vitality and in helping Kenya respond to shocks given that uncertainty about the future path of the pandemic continues to tilt economic risks to the downside.

“As for specific policies, the authorities have taken strong efforts to achieve their planned deficit path in a highly uncertain policymaking environment. They met the fiscal balance target at end-March by a wide margin and had fully implemented their planned tax policy measures, although with continuing pressures from the pandemic, tax revenue yields were slightly below expectations. The EFF/ECF program recognizes the central importance of having delivered on policy actions even as tax yields remain uncertain in the near term.

“The Financial Year 2021/2022 budget proposal is being aligned with the authorities’ ambitious multi-year plan to reduce debt-related vulnerabilities and it secures resources to support social spending. The authorities are also developing a strategy to assess and manage risks to the budget from state-owned enterprises (SOEs), leveraging results of their ongoing financial evaluations of those firms facing the greatest challenges.

“Noteworthy is that the authorities continue to push forward with their agenda to increase transparency and fight corruption. They will shortly publish an audit of all COVID-related expenditures in Financial Year 2019/2020. They are also strengthening public accountability, and the public procurement portal should soon publicize comprehensive information on all firms that win procurement contracts, including the names of their beneficial owners. In addition, the authorities’ plan to adopt a common payroll system at the national and county level should help contain spending growth and limit the scope for corruption.

“The Central Bank of Kenya (CBK) plans to capitalize on the improving outlook by setting out its strategy to strengthen Kenya’s monetary policy framework, supporting its flexible inflation targeting regime. The CBK’s continued close attention to financial sector soundness will reinforce banks’ ability to support the recovery.

“The staff team is grateful to the authorities for the candid and constructive discussions and their efforts to ensure success of their economic program supported by the IMF. The team met with Cabinet Secretary for the National Treasury and Planning, Mr. Ukur Yatani; Governor of the Central Bank of Kenya (CBK), Dr. Patrick Njoroge; Deputy Chief of Staff, Executive Office of the President, Mrs. Ruth Kagia; the Principal Secretary for the National Treasury, Dr. Julius Muia; Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe; and other senior government and CBK officials. Staff also had productive discussions with representatives of the Parliamentary Budget Office, the private sector, civil society organizations, and development partners.”