IMF board approves Kenya $700m insurance loan

The Executive Board of the International Monetary Fund (IMF) approved a SDR 352.82 million (about US$497.1 million) Stand-By Arrangement and a SDR 135.7 million (about US$191.2 million) arrangement under the Stand-By Credit Facility1 (SBA/SCF) for Kenya for a combined SDR 488.52 million (about US$688.3 million or 180 percent of Kenya’s quota).

The one-year arrangements would provide a policy anchor for continued macroeconomic and institutional reforms, and help to mitigate the impact of potential exogenous shocks while these reforms are being pursued, thereby supporting continued strong growth and durable poverty reduction.

The Executive Board’s decision makes available a total of SDR 379.96 million immediately (about US$535.3 million), and the remainder in two equal tranches upon completion of semi-annual program reviews. The authorities plan to treat the arrangements as precautionary, and do not intend to draw on the SBA/SCF unless external shocks lead to an actual balance-of-payment need.

Following the Executive Board’s discussion on Kenya, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, made the following statement:

“The Kenyan authorities’ prudent macroeconomic policies and major institutional and economic reforms of recent years have contributed to macroeconomic stability, higher growth, and increased external buffers. Nonetheless, the economy remains vulnerable to shocks arising from Kenya’s growing integration into global markets, security concerns, and extreme weather events. In this context, the new arrangements with the Fund provide a policy anchor for continued reforms, and would mitigate the impact of shocks if they materialize, supporting continued strong growth and poverty reduction.

“The planned scaling up of infrastructure investments under the authorities’ economic program will lift Kenya’s growth trajectory by removing bottlenecks to private sector activity and fostering regional integration, provided public debt remains on a sustainable path. In this regard, the authorities’ commitments to containing current spending and mobilizing additional revenue are welcome.

“Continued reforms to public finance management, in particular the full implementation of the treasury single account, the adoption of a borrowing framework for counties, and the close monitoring of contingent liabilities, will be key to containing fiscal risks in the period ahead.

“The Central Bank of Kenya (CBK) has made remarkable progress in bringing inflation toward the mid-point of its target range, aided in part by falling energy prices. Nevertheless, the CBK should remain vigilant and act as needed to head off any pressure from rapid credit growth and the envisaged scaling up of infrastructure spending.

“The authorities are appropriately taking steps to strengthen the prudential oversight of a rapidly growing financial sector. Implementing prudential guidelines for bank capital, strengthening the CBK’s stress-testing framework, and improving the supervision of expanding cross-border operations will be critical to boost the soundness of domestic banks.

“The authorities should also continue improving the quality of economic statistics, especially as regards the balance of payments, social indicators, and the labor market. More comprehensive and timely data in these areas would facilitate the policymakers’ assessment of Kenya’s progress in reducing remaining vulnerabilities.”

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