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The Executive Board of the International Monetary Fund (IMF) has approved a new funding-support programme for Kenya, totalling $1.5 billion. The funding programme comes after the conclusion of a 12-month programme in February, which gave total access of $688 million to the largest East African economy.

The new programme consists of a 24-month Stand-By Arrangement (SBA) valued at SDR 709.259 million (about $989.8 million) and a 24-month Standby Credit Facility (SCF) valued at SDR 354.629 million (about $494.9 million). The SBA is an IMF’s lending instrument for emerging and advanced market countries. The SCF provides financial assistance to low-income countries experiencing short-term financing problems caused by shocks. Both facilities will help Kenya address its balance of payments (BoP) needs.
 
Kenya has been facing macroeconomic challenges arising from commodity price shocks, which has reduced government revenues. Kenya’s budget deficit reached an all-time high of 8.1 percent of GDP in 2015 after rising to 8 percent in 2014, and up from 5.6 percent recorded in 2013. Debt-to-GDP ratio has jumped to about 50 percent – one of the highest among African countries. The Kenyan shilling declined against the U.S. dollar by over 11 percent in 2015.

IMF’s Deputy Managing Director and Acting Chair of the Executive Board, Min Zhu, said, “Despite positive policy steps undertaken under the current Fund-supported programme, the economy remains vulnerable to shocks, reflecting less favourable global financial market conditions, as well as continued security threats and potential extreme weather events. In this context, the new precautionary arrangements would provide a policy anchor for continued macroeconomic and institutional reform, and would help mitigate the impact of potential exogenous shocks if they were to materialize.
 
The Kenyan government plans to reduce the budget deficit by 3 percent of GDP over the next two years through a well-balanced policy mix.

“Continued public financial management reforms – aimed at upgrading efficiency, transparency and accountability, to complement the envisaged fiscal consolidation – are key to containing risks,” Mr. Zhu stated.
 
 The Central Bank of Kenya (CBK) retained its benchmark interest rate at 11.5 percent in January due to rising inflation. The country’s inflation figure had reached 7.78 percent in January. However, inflation dropped to 6.8 percent in February, the lowest since October 2015, and is now within the CBK’s target rate of 2.5 percent to 7.5 percent.

“Continued improvement in the quality of macroeconomic statistics and strengthening the business climate will be key to promoting transparency and evidence-based policy making, and supporting inclusive growth,” the IMF Deputy Managing Director concluded.

The latest decision immediately makes available $757.5 million for the country, while the remainder will be provided in four tranches upon completion of semi-annual programme reviews.

The new funding is equivalent to 196 percent of Kenya’s quota of the Special Drawing Rights (SDRs), the international foreign exchange reserve assets used to supplement IMF member countries' official reserves. SDR has been playing a critical role in providing liquidity to the global economic system.