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IMF and Kenya reach preliminary agreement on $2.4bn loan

THE IMF has reached a staff-level agreement with Kenya for a $2.4bn loan that will partly support the country’s response to the coronavirus pandemic.

The three-year deal will also help Kenya begin to reduce its debt relative to GDP, the lender said in a statement. The programme comes under the IMF’s Extended Fund Facility and Extended Credit Facility arrangements.

The pandemic battered East Africa’s largest economy, hitting tax revenue as movement restrictions weighed on activity. The fiscal deficit may widen to 8.9 percent of GDP in 2021 as the government borrows more to spur an economic recovery and support businesses and households.

‘The economy is picking up from an unprecedented shock suffered as a result of the Covid-19 pandemic,’ the IMF said. ‘Notwithstanding the recovery, uncertainty remains in a durable return to the path of strong, sustainable, and inclusive growth.’

The agreement comes after Kenya has begun reversing some of the measures introduced to cushion the economy. Temporary personal and corporate tax cuts were discontinued at end-December to help shore up collections. Small businesses, however, still benefit from some tax and debt relief arrangements.

The Treasury is asking MPs to lift the statutory debt ceiling to above KSh9 trillion  ($82.2bn) to accommodate anticipated funding gaps from the fiscal year starting in July. Public debt stood at KSh7.28 trillion by end of December, equivalent to 65.6 percent of GDP in nominal terms, according to government data.

The programme aims at reducing debt vulnerabilities ‘centred on raising tax revenues and tight control of spending,’ according to the IMF.

‘Building on steps the authorities have already taken, the strong multiyear consolidation effort will deliver a primary balance that would stabilise debt as a share of GDP and put it firmly on a downward path over the course of the programme,’ it said.


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