The International Monetary Fund (IMF) executive board on Wednesday approved Sh78.4 billion ($739 million) in emergency financing to help Kenya respond to the sudden economic shock caused by the Covid-19 pandemic.
“Emergency financing under the Rapid Credit Facility (RCF) will deliver liquidity support to help Kenya cover its balance of payments gap this year,” said IMF deputy managing director Tao Zhang in a statement.
“It will provide much-needed resources for fiscal interventions to safeguard public health and support households and firms affected by the crisis,” he said.
Financing under the RCF carries a zero interest rate, has a grace period of five and a half years, and a final maturity of 10 years, according to the IMF concessional lending terms.
The IMF warned the impact of the coronavirus fallout on the Kenyan economy will be “severe” but added it was in close contact with 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,” Mr Zhang said.
“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.”
The IMF said while Kenyan authorities have 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.
Kenya, which reported its first Covid-19 case on March 13, announced later that month that it was seeking Sh122.5 billion ($1.15 billion) emergency funding from the IMF and the World Bank to support the slowing economy in the face of the coronavirus crisis.
“We are working with IMF for an emergency assistance that does not have the conditionalities of other programmes. A lot of this will be directed to budgetary support,” Central Bank governor Patrick Njoroge had said, adding that more support would be sought from the World Bank.
Treasury Cabinet Secretary Ukur Yatani expects government revenues to be hit as both imports and domestic consumption slowdown in what has forced a review of the national budget.
“We are looking at underperformance as a result of just Covid-19, of about Sh70 billion … in terms of revenue for the remaining three months (of this financial year),” he told Reuters earlier, adding that the situation was evolving fast.
Mr Yatani said the economy is expected to grow at a much slower pace of between 1.8 percent and 2.5 percent this year, from an earlier forecast of 6 percent, on the impact of the Covid-19 pandemic.
The CBK has also cut its 2020 economic growth forecast from an initial estimate of 6.2 percent to 3.4 percent — the lowest since 2008 when Kenya was hit by the global financial crisis and the effects of the bloody post-election violence. Growth dropped from 7.1 percent in 2007 to 1.7 percent in 2008.
Kenya’s economy expanded at a slower pace of 5.4 percent last year, down from 6.3 percent in 2018.
The country has 582 confirmed cases of Covid-19 as at Wednesday, and the disease is hurting tourism and horticulture exports, especially flowers to the European markets.
Travel restrictions and social distancing rules have also impacted on consumer spending, setting the stage for job cuts and unpaid leave to workers struggling with reduced cash flow.
Kenya is also planning to tap two other facilities by the African Export Import Bank (Afreximbank) and the African Development Bank (AfDB) to help member countries alleviate sudden economic disruptions caused by the coronavirus outbreak.
President Uhuru Kenyatta said last month the resources will help Kenya deal with the economic impact of the Covid-19 pandemic while acknowledging that debt relief by rich economies to countries like Kenya will also come in handy at this time.
“The countries with the largest economies in the world are in discussion with ourselves on the issue of suspension of debt for a period in order to allow countries to be able to spend more in combating this pandemic and its effects as well as the economic recovery that needs to also come,” said President Kenyatta.
“Other regional and global institutions have also stepped up; for example the African Development Bank and the African-Import Export Bank, which have created emergency credit facilities for countries like ours,” he said.
Kenya is among member countries allowed to tap a Sh319 billion ($3 billion) emergency fund set up last month by the Afreximbank and named Pandemic Trade Impact Mitigation Facility (PATIMFA) to support its central banks, and other financial institutions to meet trade debt payments that fall due and to avert trade payment defaults.
Kenya is also among member countries allowed to access a Sh1 trillion ($10 billion) emergency fund announced by the AfDB to help alleviate sudden economic disruptions caused by the Covid-19 outbreak.
“We will utilise these facilities to support producers and exporters so that they can return to full production and protect jobs and livelihoods,” said President Kenyatta.