The International Monetary Fund (IMF) has approved a substantial loan to Kenya, amounting to $938 million (€864 million), in a bid to assist the East African nation grappling with severe economic challenges. This announcement came amidst Kenya’s struggles with liquidity issues and the lingering effects of global crises.
Kenya’s economy, a key driver in the East African region, has been significantly impacted by multiple external factors. The COVID-19 pandemic’s aftermath, coupled with the repercussions of the conflict in Ukraine and a historic drought in the Horn of Africa, has placed considerable strain on the country’s financial stability. The public debt of Kenya, with a population of around 53 million, exceeds 10,100 billion shillings (64.4 billion euros), representing about two-thirds of its gross domestic product.
The IMF’s support comes at a critical time as Kenya faces pressure on its liquid assets, particularly due to a substantial Eurobond maturing in June 2024 worth $2 billion. However, there are signs of recovery in key sectors such as agriculture and tourism, as noted by the IMF. The economy has demonstrated resilience, with real GDP growth of 5.4% in the first half of 2023, primarily driven by the agricultural sector’s solid recovery following the return of rains. Despite this growth, the nation still contends with high inflation rates and soaring prices for petrol, basic foodstuffs, and energy.
The loan agreement is subject to validation by the IMF’s Executive Board, scheduled to meet in January. If approved, Kenya will gain immediate access to $682 million. This financial aid is expected to alleviate the country’s economic burdens and assist in managing its public debt, mainly owed to China, which has surged alongside the currency’s collapse.
To address its debt, the government, under President William Ruto, has prepared a controversial budget, provoking public unrest. This budget includes new taxes expected to generate 289 billion shillings (2 billion euros), supplementing the planned 3,600 billion shillings (24 billion euros) budget for 2023-24.
Additionally, the IMF’s agreement is expected to positively impact Kenya’s international bonds. Market analysts anticipate an improvement in the country’s financial stability, with the new IMF financing, along with expected funds from the World Bank and regional banks like Afrexim, enabling Kenya to service its maturing foreign debt without depleting its hard currency reserves. The infusion of additional funds exceeded market expectations and has bolstered confidence in Kenya’s ability to manage its economic challenges effectively.
