IMF staff and the Kenyan authorities have reached a staff-level agreement on economic policies to conclude the second reviews of the 38-month EFF/ECF financed program. Kenya would have access to about US$264 million in financing once the review is formally completed by the IMF Executive Board; Economic rebound continues, building on the resilience seen during the COVID-19 shock, even as achievement of Kenya's longer-term sustainable development goals (SDGs) has suffered setbacks; Their proactive approach will enable expanding Kenya's COVID-19 vaccination program and meeting emerging needs while achieving their goal of addressing debt vulnerabilities. They continue pushing forward their agenda to increase transparency and fight corruption.
A staff team from the International Monetary Fund (IMF) led by Mary Goodman conducted a virtual mission to Kenya from October 12 to November 3, 2021 to discuss the authorities' policy priorities and progress on reforms within the context of the second reviews of Kenya's economic program supported by the IMF's EFF and ECF arrangements and the 2021 Article IV consultation.
At the conclusion of the mission, Ms. Goodman issued the following statement:
"The IMF staff team and the Kenyan authorities have reached a staff-level agreement on the second reviews of Kenya's economic program under the Extended Fund Facility(EFF) and Extended Credit Facility(ECF) and have held discussions on the 2021 Article IV consultation. The staff-level agreement is subject to the approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Kenya would have access to SDR 185 million (equivalent to about US$264 million), bringing the total IMF financial support to US$984 million in 2021.
"Kenya's economic rebound continues, and the COVID-19 vaccination program has ramped up. The pandemic delivered a significant setback to Kenya's SDGs. New challenges include drought in the northern regions of the country and emerging security needs. Energy prices are rising in tandem with world oil prices which along with higher food prices has pushed up overall inflation, even as core inflation has remained stable.
"The authorities have remained firmly committed to their economic program in this complex environment. They outperformed on their fiscal target for FY20/21. The solid recovery of tax revenue thus far in FY21/22 is providing essential resources to sustain critical programs and reduce borrowing needs. The authorities have appealed the suspension of the corporate minimum tax, which they consider an important element of their strategy for multiyear fiscal consolidation centered on tax revenue mobilization and careful expenditure control.
"The IMF team shared the authorities' assessment that some space is needed in FY21/22 for emergency spending to face the drought in the north of the country and meet emerging security needs. The planned supplementary budget for FY21/22 will also provide resources to expand the COVID-19 vaccination program and support SOEs.
"Efforts to tackle difficulties of financially-troubled SOEs, including Kenya Airways (KQ) and Kenya Power and Lighting Company, are advancing. At KQ, which had already benefitted from an Exchequer guarantee on a large portion of its debt liabilities, the recently completed forward-looking financial evaluations should inform development of robust restructuring strategies that can minimize costs to the Exchequer and ensure delivery of key restructuring milestones. In preparing to support the restructuring, the authorities are moving to proactively manage difficult tradeoffs while protecting social spending and achieving their debt reduction objectives in line with the IMF-supported program.
"Reforms are being undertaken to improve government effectiveness and proactively manage fiscal risks. A common payroll system for public employees is being rolled out, and recently released reports on risks from public-private partnerships (PPPs) and SOEs will feed into next year's budget process, advancing areas of Kenya's reform agenda that had seen some delay.
"Kenya is moving forward on its governance and anticorruption agenda. The authorities have an action plan to address legal impediments that prevented publication of beneficial ownership information of successful bidders on the public procurement website. To safeguard public resources and enhance accountability, a special audit of COVID-19 vaccine spending will be undertaken, and the comprehensive audit of FY20/21 expenditure will include a chapter on COVID-19-related spending.
"There are significant uncertainties going forward. The COVID-19 pandemic remains a threat domestically and globally. Reducing debt vulnerabilities requires continued strong adherence to the multi-year fiscal consolidation effort supported by the IMF EFF/ECF arrangements with Kenya, while safeguarding resources to protect vulnerable groups. The political calendar is also a source of uncertainty.
"Kenya's longer-term outlook remains positive. The further deepening role of the digital economy in Kenyans' everyday life points toward areas of dynamism for the future, even as sectors, like manufacturing, have seen challenges to competitiveness and actions will be needed to seize opportunities in free trade agreements.
"The staff team is grateful to the authorities for the candid and constructive discussions, and their proactive approach to ensure success of their economic program supported by the IMF. The team met with Cabinet Secretary for the National Treasury and Planning, Mr. Ukur Yatani; Governor of the Central Bank of Kenya (CBK), Dr. Patrick Njoroge; Head of the Public Service, Mr. Joseph Kinyua; the Principal Secretary for the National Treasury, Dr. Julius Muia; Deputy Governor of the CBK, Ms. Sheila M'Mbijjewe; and other senior government and CBK officials. Staff also had productive discussions with representatives of the Parliamentary Budget Office, the private sector, and civil society organizations."
Distributed by APO Group on behalf of International Monetary Fund (IMF).