Government secures U.S. $ 688 million dollars IMF standby credit

The financing package involves “blended access, comprising of 497.1 million dollars Stand-By Arrangement and 191.2 million dollars arrangement under the Stand-By Credit Facility (SBA/SCF) for a combined 688.3 million dollars.

IMF Deputy Managing Director Naoyuki Shinohara said 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.

“The economy, however, remains vulnerable to shocks arising from Kenya’s growing integration into global markets, security concerns, and extreme weather events,” Shinohara said in a statement released in Nairobi.

IMF’s decision makes available a total of 535.3 million dollars immediately and the remainder in two equal tranches upon completion of semi-annual program reviews.

The government plans 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.

The IMF said Kenya’s rising income and a track record of access to international markets justifies the country’s eligibility for blended access financing.

It said the Kenyan economy is affected by a sudden shift in global investors’ risk sentiment, a deterioration of security conditions, or large weather-related shocks.

“The new financing package thus represents an effort to tailor existing Fund facilities to the specific insurance needs of the country,” the Fund said.

This is the first financing package of this type approved by the Fund for a “frontier” market—second-generation emerging market country—in sub-Saharan Africa.

Shinohara said the new arrangements with IMF provide a policy anchor for continued reforms, and would mitigate the impact of shocks if they materialize, supporting continued strong growth and poverty reduction.

He said 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.

The Kenyan government had requested the program as insurance policy against economic shocks, despite having successfully borrowed in the international capital markets in 2014 in its first dollar-denominated bond.

Kenya’s shifting focus to the precautionary lending arrangement is part of the measures the government is taking to prevent a recurrence of the shocks that hit its economy in 2011 after the Central Bank of Kenya (CBK) failed to adequately respond to the combination of internal and external shocks.

Analysts say the government wants to keep the IMF loan in the General Reserve Account (GRA), which has been used by countries such as Zimbabwe, from where it can be drawn in the event of short- term balance of payment shocks.