Kenya debt pressure rises as IMF loans hit Sh110bn

Kenya’s budgetary support loans from the International Monetary Fund (IMF) have hit Sh110 billion this year after the lender disbursed an additional Sh29 billion on Friday to help the country recover from the economic fallout from the Covid-19 crisis.

The IMF board said the loan will assist Kenya to reduce exposure to debt default risks even as it implemented cost-cutting reforms.

“Kenya showed remarkable resilience to the Covid shock in 2020 and is staging an economic recovery. Growth is now estimated to accelerate to 5.9 per cent in 2021” IMF said.

The IMF in April approved a 38-month loan arrangement of Sh264.18 billion for Kenya under the Extended Credit Facility and the Extended Fund Facility to help respond to the economic shocks of the pandemic.

The type of credit Kenya has sought from the IMF is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.

Kenya had sought the loan from IMF in December, making it the second facility extended to Kenya by the Bretton woods organisation since the outbreak of Covid-19 last year, following the $739 million (Sh83.43) billion received in May 2020.

The latest IMF loan disbursement adds to Kenya’s stock of public debt, which stood at Sh7.91 trillion as of the end of August 2021—an equivalent of 63.9 per cent of the country’s GDP. The debt stock as of August comprised 32.7 per cent and 48.8 per cent external and domestic respectively.

Supplementary budget

Data by the National Treasury shows that overall, the national government external debt stock increased by Sh34.23 billion in August from Sh4.02 trillion in July 2021. Debt owed to bilateral creditors rose by Sh11.44 billion from Sh1.05 trillion, while multilateral debt increased by Sh18.70 billion from Sh1.67 trillion.

Antoinette Sayeh, IMF deputy managing director and acting chair, said Kenya has shown progress in reforms aimed at shaking off the economic effects of the pandemic.

“The Kenyan authorities remain firmly committed to their economic programme in a challenging environment. The programme performance has been robust. All quantitative targets were met – the financial year 2020/21 outturn over-performed – and all 2021 structural benchmarks are now completed except one,” she said on Friday.

The IMF revealed that Kenya is preparing a supplementary budget to expand its Covid vaccination drive, support state-owned enterprises (SOEs) reforms, and execute emergency spending on security and drought in the northern regions,

“Given Kenya’s limited fiscal space, the authorities are proactively managing difficult trade-offs with a view to reducing debt vulnerabilities by rationalising non-priority spending to offset half of the impact of SOE support on the deficit, in line with programme commitments,” it said.

Kenya has made vaccination against Covid-19 a priority amid rising threats of reinfection that could reverse economic gains made since October when President Uhuru Kenyatta lifted restrictions earlier imposed to curb the spread of the virus.

Covid cases have risen sharply this month, with the Health ministry calling for caution as positivity rates climbed above 16 per cent on Friday—way above the WHO high-risk limit of five per cent.

The State is also keen on revamping key parastatals as a strategy of consolidating its financial performance.

Debt-carrying capacity

Treasury Cabinet Secretary Ukur Yatani in July announced that the State would fast-track reforms in its loss-making parastatals as part of the IMF loaning deal.

The reforms include the merger of some state enterprises and the reduction of bloated workforces.

The IMF on Friday urged Kenya to continue and conclude the SOE reforms to safeguard economic improvement.

“Proactive efforts to address fiscal risks from state-owned enterprises should continue. Financial support to SOEs will require difficult trade-offs and adequate safeguards given Kenya’s limited fiscal space and the need to maintain debt sustainability” it said.

“Further strengthening fiscal transparency and governance requires more proactive efforts. The authorities should address legal impediments to begin publishing beneficial ownership information for awarded public tenders in early 2022, proceed with planned audits of Covid-19 spending, and promptly act to follow up on previous audits.”

Kenya’s return to the IMF in recent years comes as the country’s debt-carrying capacity continues to reduce with each round of borrowing, with the lender listing Kenya among countries with a high risk of debt distress.

This comes as the Parliamentary Budget Office recommended raising of the Sh9 trillion statutory debt ceiling by lawmakers to accommodate new borrowing for election spending. 

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