KENYA – The International Monetary Fund (IMF) Executive Board has approved the disbursement of KSh78.3 billion (US$739 million) in emergency funding to Kenya to boost responsiveness to the Covid-19 pandemic.
Channelled through the institution’s Rapid Credit Facility (RCF), the funds are expected to cater for the country’s urgent balance of payments stemming from the global health emergency.
“The impact of COVID-19 on the Kenyan economy will be severe. It will act through both global and domestic channels, and 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,” the IMF noted in a statement.
“Authorities have committed to resume their fiscal consolidation plans once the crisis abates to reduce debt vulnerabilities.”
The disbursement is marginally shy of KSh79.5 billion (US$750 million) in expected flows from the multilateral lender by the government of Kenya which is further expectant of KSh106 billion (US$1 billion) in new flows from the World Bank development policy operations (DPO).
New funding from the IMF is expected to support government liquidity amidst shocks to its funding of the current account including a slack in Forex earnings from lower exports and tourism.
“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,” noted IMF Deputy Managing Director Tao Zhang.
The IMF has further advised Kenya to loosen its fiscal consolidation stance to allow space for Covid –related interventions albeit on a temporary and targeted manner.
According to data from the Central Bank of Kenya (CBK), the current account deficit is expected to remain at 5.8 percent this year supported in part by gains from a lower fuel import bill in line with the recent plunge on global crude prices.
Even so, the country’s fiscal deficit is expected to deteriorate from rising expenditures and lower revenues with the budget hole estimated at a high of 8.2 percent at the end of June.
The IMF’s RCF facility provided low-access, rapid and concessional financial assistance to low income countries with minimal conditionality. Further, the outright loan disbursement has scope for repeat use even as its access is determined on a case by case basis.
In addition to injecting emergency liquidity, the IMF funds are expected to strengthen the country’s usable foreign currency reserves providing further cushioning to the shilling.
The local unit has already drawn in some confidence in the week, accelerating to correct its recent slump in valuation against the US dollar. Flows from external financing make up nearly two-thirds of total usable foreign currency reserves held at the CBK.