IMF board approves fresh Sh79billion loan to Kenya to fight Covid-19
The International Monetary Fund (IMF) has approved a Sh79billion loan to Kenya to help it fight the Covid-19 pandemic.
This is the second significant credit facility Kenya has received from Bretton Wood institutions in the last two months since the virus hit Nairobi.
In April, the Ministry of Health received another Sh5.3billion from the World Bank to finance production of sanitisers, protective gear for medical personnel and scaling up bed capacity for Covid-19 patients
In a statement released on Wednesday the Executive Board of the IMF said it had approved the disbursement of Sh79billion (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 the Kenyan economy would be severe adding that 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 statement said.
It noted that Kenya has committed to resume fiscal consolidation plans once the crisis abates to reduce debt vulnerabilities.
It said the credit facility 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.
It added that it remains in close contact with the 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 should be temporary and well targeted.
Once the crisis abates, the IMF said it is critical that the 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.
This comes at a time when concerns have been raised on how the 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 Covid-19 related expenditures and publish the results.
In March, the CBK revealed that it had requested the IMF and the World Bank for emergency funding of upto Sh123billion (1.15billion) to help Kenya deal with the revenue shortfalls due to the virus.