IMF, Kenya Reach Staff-Level Agreement on $2.4 Billion Loan

(Bloomberg) -- The International Monetary Fund reached a staff-level agreement with Kenya for a $2.4 billion loan that will partly support the country’s response to the coronavirus.

The three-year deal will also help Kenya begin to reduce its debt relative to gross domestic product, the lender said Monday in a statement. The program comes under the IMF’s Extended Fund Facility and Extended Credit Facility arrangements.

The pandemic battered East Africa’s largest economy, hitting tax revenue as movement restrictions weighed on activity. The fiscal deficit may widen to 8.9% of GDP this year as the government borrows more to spur an economic recovery and support businesses and households.

“The economy is picking up from an unprecedented shock suffered as a result of the Covid-19 pandemic,” the IMF said. “Notwithstanding the recovery, uncertainty remains in a durable return to the path of strong, sustainable, and inclusive growth.”

The agreement comes after Kenya has begun reversing some of the measures introduced to cushion the economy. Temporary personal and corporate tax cuts were discontinued at end-December to help shore up collections. Small businesses, however, still benefit from some tax and debt relief arrangements.

The Treasury is asking lawmakers to lift the statutory debt ceiling to above 9 trillion shillings ($82.2 billion) to accommodate anticipated funding gaps from the fiscal year starting in July. Public debt stood at 7.28 trillion shillings by end of December, equivalent to 65.6% of GDP in nominal terms, according to government data.

The program aims at reducing debt vulnerabilities “centered on raising tax revenues and tight control of spending,” according to the IMF.

“Building on steps the authorities have already taken, the strong multi-year consolidation effort will deliver a primary balance that would stabilize debt as a share of GDP and put it firmly on a downward path over the course of the program,” it said.

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