WASHINGTON – The International Monetary Fund (IMF) has reached a staff-level agreement to augment Kenya’s financial aid, providing immediate access to $682.3 million and an additional $938 million for the country’s ongoing program. This decision comes as Kenya faces liquidity challenges, with a $2 billion Eurobond due in 2024 looming over its economy.
The IMF’s support will significantly increase Kenya’s total funding under the Extended Fund Facility and Extended Credit Facility arrangements to $4.43 billion. This includes the new augmentation of $938 million and reflects a $1 billion increase from May, which incorporated $544 million under the Resilience and Sustainability Facility (RSF).
Kenya is grappling with economic difficulties arising from the impact of COVID-19, the Ukraine war, drought, and high commodity prices, which have led to increased costs for petrol, basic foodstuffs, and energy. These challenges have put pressure on the country’s public debt, which is equivalent to two-thirds of its GDP. The Kenyan shilling has also experienced a decline against the dollar, adding stress to its hard currency reserves.
Despite these setbacks and public unrest faced over new tax measures introduced in an unpopular budget aimed at raising an additional 289 billion shillings, the East African nation has shown some signs of economic recovery. The agriculture and tourism sectors are witnessing improvement following the return of rainfall. Furthermore, Kenya’s GDP grew by 5.4% in the first half of 2023.
In December 2023, President William Ruto announced that Kenya would repay a $300 million tranche of its IMF loan amidst the public discontent. Looking forward, the IMF Executive Board is set to convene in January 2024 to approve the loan agreement formally. This move could grant Kenya immediate access to an additional $682 million.
Investors are keeping a close watch on Kenya’s economic situation, especially concerning its sovereign debt obligations. The dollar bond due next June is particularly under scrutiny due to the persistent weakness in Kenya’s foreign exchange rate.
The IMF board approval is pending for the latest financial support package, which is expected to provide relief for Kenya as it navigates through its current economic challenges.
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