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How Kenya plans to prioritise new $684.7 million (Sh110 billion) IMF loan

Kenya has secured a $684.7 million loan from IMF

President William Ruto and Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), at the New Global Financing Compact summit in Paris on 22 June 2023.

Kenya is set to receive the recently approved $684.7 million IMF loan, following the IMF Executive Board's green light for the sixth review of the country's Extended Fund Facility/Extended Credit Facility (EFF/ECF) program.

In 2023, the economy exhibited resilience, achieving a 5.6 percent year-on-year growth in the first nine months, primarily driven by a robust recovery in the agricultural sector.

On January 18, National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung'u revealed the priority areas in which the government plans to utilize the new loan.

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The $684.7 million disbursement comprises $624.5 million under the EFF/ECF and an additional $60.2 million under the Resilience and Sustainability Facility (RSF).

The Extended Fund Facility provides financial assistance to help address structural weaknesses that require time to address. To implement medium-term structural reforms, the EFF offers longer program engagement and a longer repayment period.

The Extended Credit Facility provides medium-term financial assistance to tackle protracted balance of payments problems.

The Resilience and Sustainability Facility provides affordable long-term financing to support reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness.

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1. Macroeconomic Stability Enhancement

A significant portion of the funds is earmarked for maintaining macroeconomic stability. The government intends to strengthen its reserves, a crucial element in safeguarding the nation against external shocks.

The funds which will be disbursed in dollars will help meet the demand for the green back, which has been high in the last few years. For most of 2023, the Central Bank of Kenya has been maintaining foreign cash reserves below the recommended threshold.

The Kenyan currency has also been shedding value against the dollar, reaching $1=Sh160 on January 17.

2. Budget Support and Fiscal Resilience

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Essential budget support is another focal point for the disbursement. By directing a portion of the funds towards fiscal consolidation, the government aims to fortify its fiscal position, after facing a cash crunch.

3. Strengthening Climate Resilience Efforts

A portion of the funds will be directed towards initiatives under the Resilience and Sustainability Facility (RSF).

This facility is specifically designed to support Kenya in adapting to climate-related shocks and fostering the development of a green and resilient economy.

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4. Addressing Geopolitical Challenges

Kenya's economy has demonstrated resilience in the face of various challenges, including the COVID-19 pandemic, droughts, floods, and disruptions in global supply chains due to heightened geopolitical tensions.

The strategic utilization of the IMF loan can be seen as a proactive measure to address these challenges and sustain the positive economic trajectory.

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