The International Monetary Fund (IMF) has approved a Sh79.3 billion loan to Kenya to help the country fight Covid-19.
This is the second significant credit facility Kenya has received from a Bretton Woods institution in the last two months since coronavirus hit Nairobi.
In a statement released yesterday the Executive Board of the IMF, the Fund said it had approved the disbursement of Sh79 billion (about US$739 million) to be drawn under the Rapid Credit Facility (RCF).
“This will help to meet Kenya’s urgent balance of payments need stemming from the outbreak of the Covid-19 pandemic,” the statement reads in part.
The lender said the impact of Covid-19 on Kenya’s economy will be severe, adding that it will act through both global and domestic channels, but downside risks remain large.
“While the authorities have taken decisive action to respond to the pandemic’s health and economic impacts, the sudden shock has left Kenya with significant fiscal and external financing needs,” IMF said.
It noted that Kenya has committed to resume fiscal consolidation plans once the crisis abates to reduce debt vulnerabilities.
The Fund says the loan will help Kenya to address those needs and allow the government to maintain an adequate level of international reserves and help provide the budget financing needed to respond to the pandemic.
IMF says it remains in close contact with Kenyan authorities and stands ready to provide policy advice and further support, as needed.
“The Covid-19 pandemic has delivered a large economic shock to Kenya. The pandemic has impacted nearly all facets of the economy—particularly tourism, transport, and trade—and led to urgent balance of payments and fiscal financing needs,” Tao Zhang, the IMF’s Deputy managing Director and Acting Chair said at the conclusion of yesterdays board discussion.
“Emergency financing under the RCF will deliver liquidity support to help Kenya cover its balance of payments gap this year. It will provide much-needed resources for fiscal interventions to safeguard public health and support households and firms affected by the crisis. It will also catalyse necessary financing from other donors,” Zhang added.
He noted that a pause in Kenya’s fiscal consolidation plans to accommodate Covid-19-related measures is appropriate given that these measures are temporary and well targeted.
Once the crisis abates, the IMF says it is critical that authorities resume their pursuit of a growth-friendly medium-term fiscal adjustment, including raising revenues as a share of Gross Domestic Product (GDP) to reduce debt vulnerabilities.
“The Central Bank of Kenya (CBK) has taken various measures to maintain sufficient liquidity in the financial sector. It should continue to stand ready to further support the economy and the financial sector’s health, as necessary, while ensuring that policy decisions are data-driven. The CBK should also continue to allow the exchange rate to act as a shock absorber,” the statement added.
QUESTIONS ON USE OF FUNDS
The IMF loan comes at a time when concerns have been raised over how Covid-19 funds are being used in Kenya after it was revealed that the country was splashing millions of shillings on non-essentials as well as buying ‘tea and snacks’ at inflated prices.
The IMF says to ensure that Covid-19 related resources are used for their intended purpose, Kenyan authorities plan to conduct independent post-crisis auditing of coronavirus related expenditure and publish the results.
In March, the CBK revealed that it had requested the IMF and the World Bank for emergency funding of upto Sh123 billion (1.15billion) to help Kenya deal with the revenue shortfalls due to the virus.
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