US says IMF halted Kenya’s economic collapse
- Ms Yelllen made the comments last Friday while pushing Congress to approve 503 billion shillings for international plans under institutions like the IMF.
- The United States had taken note of public outcry in Kenya over a series of loans the country received from the IMF, sparking street protests in response to what it calls the government’s growing appetite for debt. .
- The United States is the main shareholder of the IMF and exerts enormous influence on the decisions of the institution of Bretton Woods.
The US government has revealed that emergency loans from the International Monetary Fund (IMF) have saved Kenya’s economy from near collapse amid protests by Kenyans over rising public debt.
US Treasury Secretary Janet Yellen has called on the US Congress to continue supporting the IMF, citing its involvement in Kenya following the Covid-19 economic hardship, which has prompted layoffs, pay cuts and shutdowns of companies.
Ms Yelllen made the comments last Friday while pushing Congress to approve 503 billion shillings for international plans under institutions like the IMF.
The United States had taken note of public outcry in Kenya over a series of loans the country received from the IMF, sparking street protests in response to what it calls the government’s growing appetite for debt. .
“IMF loans have helped Kenya avoid a financial crisis and put its economy back on the path to financial sustainability,” the US Treasury boss said.
“The pandemic has hit Kenya’s economy hard, compounding pre-existing financial vulnerabilities and debt risks. These efforts have helped the Kenyan economy rebound from the Covid-19 shock and set in motion an economic recovery, with growth expected to approach 6% in 2021 and 2022.”
The United States is the main shareholder of the IMF and exerts enormous influence on the decisions of the institution of Bretton Woods.
Kenya’s economy fell 0.3% in 2020, hit by the economic fallout from Covid-19, compared to 5.0% growth in 2019.
The pandemic has hit Kenya’s incomes and limited access to commercial loan markets, forcing the country to turn to the World Bank and IMF for direct budget financing.
The IMF gave Kenya 173 billion shillings between March 2020, when the first case of Covid-19 was reported in the country, and December last year.
“The IMF lent Kenya $740 million in rapid emergency financing, which provided much-needed liquidity support… In April 2021, the IMF also approved a three-year $2 billion IMF program – mainly financed by the PRGT [poverty reduction and growth trust] – to help Kenya’s economy sustainably recover from the scars of the pandemic,” the US Treasury said.
Kenya had stayed away from direct budget funding from institutions such as the IMF and World Bank under the administration of former President Mwai Kibaki, with much of the money coming from projects.
But the country’s deteriorating cash position at the height of the pandemic, marked by falling revenues and worsening debt service obligations, forced the country to revert to such conditional loans.
President Uhuru Kenyatta, who took the reins in 2013, has overseen an increase in government borrowing.
Total debt stands at 70% of gross domestic product (GDP), up from around 45% when he took office – a rise that some politicians and economists say is burdening future generations with too much debt.
The government has defended the increase in borrowing, saying the country needs to invest in infrastructure, including roads and railways.
Kenya has agreed with the IMF to stick to concessional financing to reduce debt vulnerabilities that have seen the country move away from syndicated loans and focus solely on multilateral loans and Eurobonds.
Kenya is trying to balance its debt portfolio after a wave of trade debt that has accumulated and become expensive to repay, absorbing more than 63% of tax revenue.
Concessional and semi-concessional borrowing, including from the IMF and other multilateral agencies, is part of the Treasury’s plan to limit reliance on external commercial lending in coming years to reduce debt vulnerabilities.
Cheaper loans from the World Bank and IMF have reduced Kenya’s average loan cost from 9.1% to 6.9%, according to the Parliament’s Budget Office.
Multilateral loans are relatively cheaper, long-term and come with a grace period during which Kenya will not be required to pay as it wipes out costly bad loans.