How Kenya will Spend IMF Loan amid Yawning Economy

Kenya will receive Kshs. 80.6B ($750million) from World Bank loan and Kshs. 44.1billion ($410million) from IMF by end of June as it focuses on debt repayment extension from its external lenders.

CBK Governor Patrick Njoroge stated that the funds are meant to bridge budget deficit. He was speaking at a post-Monetary Policy Committee meeting on Thursday, where he disclosed that part of the money will fund post-covid19 recovery programs and the national budget.

“Yes, Kenya is keen on any debt repayment extension, such arrangement will free up resources to be channeled to other purposes in the direction of helping the economy recover,” Mr. Njoroge stated.

Most poor countries are subscribed to Debt service Suspension Initiative (DSSCI) to help them safeguard their livelihoods as well as concentrating their resources in fighting the global pandemic. The initiative was commissioned on May 1, 2020 and has offered over kshs.544.7billion ($5 billion) as relief to more than 40 qualified countries. 

Kenya’s application to DSSI was granted in January by a club of rich countries dubbed Paris Club. According to Wikipedia, Paris Club “is a group of officials from major creditor countries whose role is to find co-ordinated and sustainable answers to the payment hitches experienced by debtor countries”.

Previously, Kenyans had written online petitions to IMF demanding the withdrawal of loan support for Kenya. Enraged Kenyans accused their government of corruption and over-bloated budget. This prompted IMF to demand Kenyans to direct their questions to their FAQs (Frequently Asked Questions) page.

On their website IMF states that “Kenya has large financing needs on account of the adverse effects that the COVID-19 pandemic has created”.

The government of Kenya created a medium-term reform program outlined in a Budget Policy Statement that targets to seal the economic challenges as spelled in the fiscal framework. According to IMF, they are only providing financial support and policy advice to the government program.

Why Kenya opted for IMF Loan?

The government’s key objective is to slowly stabilize public debt. President Uhuru Kenyatta led government has been stifled by widening budget deficit and surging debt, which has already hit the ceiling.

Covid-19 pandemic led to reduced tax collection, which reduced the government income generated from taxes.