The IMF has approved the disbursement of Ksh78.3 billionto be drawn under the Rapid Credit Facility to support the authorities’ response to the COVID-19 pandemic. This will help to meet Kenya’s urgent balance of payments need stemming from the outbreak of the COVID-19 pandemic.
The COVID-19 pandemic is taking a serious toll on the Kenyan economy, significantly reducing growth, creating fiscal and external financing needs; It is important that the authorities resume their fiscal consolidation plans to reduce macroeconomic vulnerabilities once the crisis abates.
The impact of COVID-19 on the Kenyan economy will be severe. It will act through both global and domestic channels, and downside risks remain large. While the government has taken decisive action to respond to the pandemic’s health and economic impacts, the sudden shock has left Kenya with significant fiscal and external financing needs. Authorities have committed to resume their fiscal consolidation plans once the crisis abates to reduce debt vulnerabilities.
The IMF is in close contact with the Kenyan authorities and stands ready to provide policy advice and further support, as needed.
The COVID-19 pandemic has delivered a large economic shock to Kenya. The pandemic has impacted nearly all facets of the economy—particularly tourism, transport, and trade—and led to urgent balance of payments and fiscal financing needs.
Emergency financing under the RCF will deliver liquidity support to help Kenya cover its balance of payments gap this year. It will provide much-needed resources for fiscal interventions to safeguard public health and support households and firms affected by the crisis. It will also catalyze necessary financing from other donors.
A pause in the authorities’ fiscal consolidation plans to accommodate COVID-19-related measures is appropriate. These measures should be temporary and well-targeted. Once the crisis abates, it is critical that the authorities resume their pursuit of a growth-friendly medium-term fiscal adjustment, including raising revenues as a share of GDP, to reduce debt vulnerabilities.
The Central Bank of Kenya (CBK) has previously taken various measures to maintain sufficient liquidity in the financial sector. It should continue to stand ready to further support the economy and the financial sector’s health, as necessary, while ensuring that policy decisions are data-driven. The CBK should also continue to allow the exchange rate to act as a shock absorber.