The International Monetary Fund (IMF) on Saturday announced that its Executive Board has approved a three-year credit facility for Kenya amounting to US$2.34 billion to support the country’s next phase of COVID-19 response, and help put strong effort to reduce the country’s debt levels.
The fund noted that Kenya will be able to immediately access up to US$307.5 million to be used for budgetary support. This is in addition to the $739 million released in May 2020 under the Rapid Credit Facility meant to help Kenya meet its balance of payments needs.
“Kenya was hit hard at the onset by the COVID-19 pandemic. With a forceful policy response, the economy has been picking up heading into 2021 after likely posting a slight contraction of 0.1 per cent in 2020. Even with this recovery, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed.” IMF said in a statement.
This comes as Fitch Ratings recently affirmed Kenya’s credit rating at ‘B+’ with a negative outlook. Fitch says that on the positive, the rating reflects the country’s strong economic growth, macroeconomic stability, and favourable public debt composition.
However, Fitch says Kenya’s drawbacks include rising public debt burden, high external debt, poor governance, weak public finances and slow fiscal consolidation.
IMF on Pandemic Impact
IMF also noted that the pandemic has worsened the country’s pre-existing fiscal vulnerabilities.
“Kenya’s debt remains sustainable, but it is at high risk of debt distress. To address debt-related risks, the authorities have taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 percent of GDP, respectively, this fiscal year.” IMF further noted in the note.
Estimates show that Kenya faces US$2.6 billion in sovereign external debt servicing in 2021 and US$3.6 billion in 2022.
Kenya will use a combination of the IMF financing, a US$1 billion World Bank loan as well as a Eurobond issuance in 2021 and 2022 to service this debt obligation.
The Kenya government also recently announced that it will participate in the G20s Debt Service Suspension Initiative (DSSI) in 2021 after not taking part in 2020.