IMF Completes Fifth Reviews of Kenya's Fund Facilities and Approves Resilience and Sustainability Arrangement

• The IMF Executive Board completed the fifth reviews under EFF/ECF arrangements for Kenya, allowing for an immediate disbursement equivalent to SDR306.7 million (about US$415.4 million). This includes SDR81.4 million (about US$110.3 million) from augmentation of access.
• The Executive Board also approved a 20-month arrangement under the Resilience and Sustainability Facility (RSF) in an amount of SDR407.1 million (about US$551.4 million) to support Kenya's ambitious efforts to build resilience to climate change and catalyze further private climate financing.
• Key policy priorities of the program include reducing debt vulnerabilities through multi-year fiscal consolidation efforts. This will be done through raising tax revenues and rationalizing spending, while protecting priority social and developmental spending. A proactive monetary policy stance is also part of a mutually reinforcing prudent set of policies.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the fifth reviews under theExtended Fund Facility(EFF) and theExtended Credit Facility(ECF) arrangements for Kenya. The Board has also approved an extension of the EFF/ECF arrangements from the current 38 months to 48 months (through April 1, 2025) to allow sufficient time to implement the authorities' reform agenda and realize the program's key objective and an augmentation of access amounting to 75 percent of quota (SDR407.1 million) over the extended program duration for balance of payments support.

The Board's decision allows for an immediate disbursement of SDR306.7 million (about US$415.4 million), bringing total disbursements under the arrangements so far to SDR1.51 billion (about US$2.04 billion). In completing the review, the Executive Board also approved modification of program conditionalities, waivers of nonobservance of the continuous performance criteria on accumulation of external arrears and end-June 2023 tax revenue target in light of corrective measures taken by the authorities and waiver of applicability for all other end-June 2023 and continuous quantitative performance criteria.

The Executive Board also approved Kenya's request for an arrangement under theResilience and Sustainability Facility(RSF) of SDR407.1 million (75 percent of quota; about US$551.4 million) to support Kenya's ambitious efforts to build resilience to climate change. The RSF duration will coincide with the period remaining under the EFF/ECF arrangements, as extended.

The EFF/ECF arrangements (approved on April 2, 2021, see Press Release21/98) aim to support Kenya's program to address debt vulnerabilities, the authorities' response to the COVID-19 pandemic and global shocks, and to enhance governance and broader economic reforms while safeguarding resources to protect vulnerable groups and address developmental needs. The Kenyan authorities have made good progress in implementing their economic reform program despite facing the worst drought in decades and a challenging external environment. The RSF-supported program is expected to further integrate climate-related considerations in macro policies and frameworks by adopting green public financial management and climate-sensitive public investment management reforms, introduce carbon pricing, enhance effectiveness of Kenya's existing frameworks to mobilize climate finance, and strengthening disaster risk reduction and management.

Executive Board Assessment

At the conclusion of the Executive Board's discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, stated:

"Kenya's economy has been resilient despite the worst drought in many decades and a difficult external environment. The ECF and EFF arrangements continue to support the authorities' efforts to address emerging challenges to sustain macroeconomic stability and market confidence, promote growth, and advance ongoing reforms. While the medium-term outlook remains positive, in the near-term global headwinds continue to have a bearing on economic activity, amid elevated inflationary pressures. The authorities' commitment to robust policies to sustain reforms that promote resilient and inclusive growth will support Kenya's positive medium-term prospects.

"The approval of the FY2023/24 Budget and 2023 Finance Act are crucial steps to support ongoing consolidation efforts to reduce debt vulnerabilities while protecting social and development expenditures. However, recent challenges in resource mobilization and elevated uncertainty call for contingency plans that can be quickly deployed to ringfence fiscal performance going forward. Tighter financing conditions also require a prudent debt policy and continued efforts to prioritize concessional loans.

"The Central Bank of Kenya's (CBK) commitment to a data dependent policy stance is essential to keep inflation expectations anchored. The CBK should also continue taking appropriate steps to strengthen its reserves position and deepen the FX market, while allowing exchange rate flexibility as a shock absorber.

"Sustaining the momentum in the structural reform agenda will require prioritizing strengthening public financial management systems; management of fiscal risks from state-owned enterprises—including by enhancing their governance and oversight; enhancing the anti-corruption framework; addressing shortcomings in the AML/CFT framework; and ensuring effective expenditure audits for transparency and accountability.

"The reforms under the RSF program are expected to advance Kenya's already strong track-record at addressing climate-related challenges. These reforms will advance efforts to incorporate climate risks into fiscal planning and the investment framework, reduce emissions through carbon pricing, enhance Kenya's existing frameworks to mobilize climate finance; and strengthen disaster risk reduction and management."