The International Monetary Fund (IMF) announced Thursday that it has reached a staff-level agreement with Kenya, paving the way for the disbursement of a US$682.3 million loan early next year.
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The agreement is subject to IMF management approval and executive board consideration, expected in January 2024, said the IMF team led by Haimanot Teferra, which completed its two-week mission to Kenya the day before.
According to the IMF in a statement, tightening global financing conditions for frontier economies and global geopolitical tensions are exacerbating problems stemming from the legacy of the pandemic and the multi-seasonal drought, further straining Kenya's balance of payments and fiscal financing needs.
The agreement on economic policies and reforms now concludes the sixth review of Kenya's extended credit facility and extended fund facility agreements, which were approved in 2021 and extended for 10 months on July 17, 2023, to support Kenya in maintaining robust and inclusive growth, the statement said.
The IMF also said it had reached agreement on increased access under those agreements, and the first review of the Resilience and Sustainability Facility.
Kenya's economy has shown resilience, with real gross domestic product expanding by 5.4% in the first half of 2023, mainly due to a robust recovery in the agricultural sector following the return of the rains, the statement said.
According to the IMF, in FY 2022/23, the primary deficit stood, as expected, at 0.6% of GDP, reflecting tight expenditure management in light of weak tax revenues.
In addition, the statement said that "financing conditions remain difficult. With a tightening of monetary policy in June and tighter liquidity conditions, government bond yields have been on a marked upward trend."
It added that the external current account deficit has narrowed, driven by the recovery of the tourism sector to pre-crisis levels in 2009, resilient remittances, lower imports and real exchange rate depreciation.
The lender warned that despite continued commitment to the implementation of the IMF-supported economic program, which is broadly on track, uncertainty looms over Kenya's effective access to international bond markets. "This uncertainty is putting substantial pressure on liquidity, mainly due to the sizeable Eurobond maturing in 2024," it said.