The International Monetary Fund (IMF) has confirmed its talks with Kenya to renew a 165 billion shilling (about $1.5 billion) standby loan facility.
Gerry Rice, IMF Director of Communications Department, said the lender’s mission, which was in Kenya in late 2020, reached an agreement in many areas on implementation of the fiscal plan.
“We are in discussions with the Kenyan authorities on the possibility of a programme to support the next phase of their response to the crisis,’’ Rice said in a statement issued on Thursday evening.
“We had a mission there toward the end of last year, and reached an agreement in many areas so that technical work is continuing,’’ he said.
“We hope that will lead to something being presented to our board for consideration in early 2021.’’
The IMF withdrew access to the standby facility in June 2018 after Kenya failed to meet programme objectives such as reducing the budget deficit and modifying interest-rate controls.
An IMF team and the Kenyan authorities had agreed that a reduction in the fiscal deficit to 7.2 per cent of GDP in 2017/18 and further to 5.7 per cent of GDP in 2018/19, down from 8.8 per cent in 2016/17, would be appropriate.
Rice said Kenya continues to face an unprecedented external shock that will severely challenge the economy’s underlying health and the policy path forward.
“We are recommending a pause in fiscal adjustment this fiscal year to accommodate increased health spending and support for the economy during this shock,’’ he said.
“We are also recommending continued supportive monetary policy response, as has been the case in Kenya.’’
“As we move beyond the crisis, it will be critical that the authorities resume the pursuit of fiscal sustainability, fiscal adjustment, especially now that the shock has increased the debt vulnerabilities,’’ Rice said.
“We would be talking in those terms about a reduction of the fiscal deficit through a well-balanced policy mix.”
Kenya’s Treasury said the lack of IMF’s loan facility has badly affected the country’s foreign exchange defence mechanism over the past two years, resulting in a weaker shilling against major international currencies.