Kenya has achieved a significant milestone with the International Monetary Fund (IMF), marking a crucial step towards securing a $682.3 million loan in early 2024. The IMF’s delegation, headed by Haimanot Teferra, concluded a two-week mission to Kenya, finalizing a staff-level agreement. However, the agreement’s release is contingent upon approval by the IMF management and subsequent consideration by the executive board, expected to take place in January 2024.
Highlighting global financial challenges for emerging economies and geopolitical tensions, the IMF emphasized the compounded strain on Kenya’s economic landscape. The nation is grappling with legacy issues from the pandemic and prolonged drought, exacerbating pressures on both its balance of payments and fiscal financing needs.
This agreement effectively concludes the sixth review of Kenya’s extended credit facility and extended fund facility arrangements, initially sanctioned in 2021 and later extended by 10 months in July 2023. The extensions aimed to bolster Kenya’s efforts in sustaining robust and inclusive growth.
Furthermore, the IMF disclosed accords on augmenting access under existing arrangements, alongside the inaugural review of the Resilience and Sustainability Facility.
Despite these challenges, Kenya’s economy demonstrated resilience, boasting a 5.4 percent expansion in real gross domestic product during the first half of 2023. This growth was primarily driven by a strong recovery in the agriculture sector following favourable rainfall. Additionally, the IMF reported that in the fiscal year 2022/23, the primary deficit aligned with expectations at 0.6 percent of GDP, attributed to prudent expenditure management amid shortfalls in tax revenue.
However, the IMF cautioned about prevailing financial complexities. Following a tightening of monetary policy and liquidity constraints, government bond yields experienced a notable upward trajectory. Nevertheless, the external current account deficit narrowed, spurred by a tourism sector rebound, resilient remittances, reduced imports, and a depreciation in the real exchange rate.
Expressing concern, the IMF underscored uncertainties surrounding Kenya’s access to international bond markets, significantly influenced by an impending sizable Eurobond maturity in 2024. These uncertainties continue to exert substantial pressure on liquidity despite Kenya’s commitment to implementing the IMF-supported economic program, which remains broadly on track.