Press Release No. 22/376

IMF Reaches Staff Level Agreement on the Fourth Reviews of the Extended Fund Facility and Extended Credit Facility for Kenya

November 8, 2022

• IMF staff and the Kenyan authorities have reached staff-level agreement on economic policies to conclude the fourth reviews of the 38-month EFF/ECF arrangements. Kenya would have access to about US$433 million in financing once the review is formally completed by the IMF Executive Board.
• The new government has expressed strong commitment to the IMF-supported program.
• The economy remains broadly resilient. However, volatile international commodity prices, tighter external financing conditions, higher inflation, global slowdown in growth, and continued drought have created a challenging backdrop for economic policy making.
• Kenya’s program is helping the country through these global shocks by anchoring policies to support inclusive growth while addressing debt vulnerabilities.

Washington, DC: A staff team from the International Monetary Fund (IMF) led by Mary Goodman and Tobias Rasmussen, visited Nairobi from October 25 – November 8 to discuss progress on reforms and the authorities’ policy priorities in the context of the fourth reviews of Kenya’s economic program supported by the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF). The arrangements were approved by the IMF Executive Board on April 2, 2021 , for an initial total amount of SDR 1.655 billion (US$2.34 billion at that time).

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

“The IMF staff team and the Kenyan authorities have reached staff-level agreement on the fourth reviews of Kenya’s economic program under the EFF and ECF arrangements. The agreement is subject to 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 336.54 million (equivalent to about US$ 433 million), bringing the total IMF financial support under these arrangements to SDR1,202.31 million (equivalent to about US$1,548 million). This latter amount includes proposed augmentation of access of SDR162.84 million to cover external financing needs resulting from drought and challenging global financing conditions.

“The Kenyan economy has been resilient in the face of a challenging environment. Real GDP grew by 6 percent year-on-year in the first half of 2022, supported by robust services sector activity notwithstanding a decline in agricultural output. Food insecurity has increased on a severe drought in parts of the country. 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. Staff projects growth at 5.3 percent in 2022 amid domestic policy tightening and a global slowdown that are likely to also weigh on growth in 2023. The medium-term outlook remains favorable, supported by proactive reform efforts by the new government.

“There has been good progress on fiscal adjustment needed to address debt vulnerabilities though pressures remain elevated. The overall deficit on cash basis declined from 8.2 percent of GDP in FY2020/21 to 6.2 percent of GDP in FY2021/22. This was supported by strong tax revenue, which increased from 12.6 to 13.7 percent of GDP. However, a constrained borrowing environment meant that planned external commercial financing did not materialize. The lack of funds contributed to 0.7 percent of GDP in unpaid obligations that were carried over to FY2022/23. Significant unbudgeted spending in the early months of this fiscal year, much of it for fuel subsidies, pose an additional challenge.

“The authorities are taking forceful measures to further reduce the fiscal deficit. Fuel subsidies were mostly eliminated in September and the variable cost adjustments in electricity prices were reinstated. In addition, the new government is in the process of formulating a supplementary budget for FY2022/23 that will institute significant spending cuts with a view to modestly reducing the deficit from the previously programed level of 5.9 percent of GDP while increasing allocations for drought interventions. Steadfast progress in revenue mobilization, anchored on the medium-term revenue strategy that is under development, as well as tight spending controls will be important to deliver further deficit reduction and put the debt/GDP ratio firmly on a downward trajectory.

“Proactive monetary policy will help anchor macroeconomic stability. The central bank has promptly tightened monetary policy in the face of heightened inflationary pressures and has signaled determination to keep price expectations anchored. Continued vigilance and responsiveness to changing external conditions will alongside exchange rate flexibility be important given the unsettled global environment.

“Looking forward, it will also be important to move ahead with structural and governance reforms. This includes 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.

“The staff team is grateful to the authorities for the candid and constructive discussions, and for their proactive approach to ensuring success of the IMF-supported economic program. The 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 Economic Council; and other senior government and CBK officials. Staff also had productive discussions with a range of government agencies, the private sector, civil society organizations, and development partners.”