Investment

The US says the IMF has stopped Kenya’s economic collapse

economy

The US says the IMF has stopped Kenya’s economic collapse


US Treasury Secretary Janet Yellen. PHOTO | AFP

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Summary

  • Ms Yelllen made the comments last Friday as she pushed Congress to approve a Sh503 billion for international plans under institutions such as the IMF.
  • The U.S. has noticed public outcry in Kenya over a series of loans the country has received from the IMF, which triggered street protests in response to what they call a growing appetite for government debt.
  • The US is the largest shareholder in the IMF and has significant influence on the decisions of the Bretton Woods institution.

The US government has revealed that emergency loans from the International Monetary Fund (IMF) have contributed Kenya’s economy from imminent collapse amid protests from Kenyans over rising public debt .

U.S. Treasury Secretary Janet Yellen has asked the U.S. Congress to continue providing support to the IMF, citing its involvement in Kenya amid the Covid-19 economic difficulties, which have led to layoffs, cuts on salary and business closure.

Ms Yelllen made the comments last Friday as she pushed Congress to approve a Sh503 billion for international plans under institutions such as the IMF.

The U.S. has noticed public outcry in Kenya over a series of loans the country has received from the IMF, which triggered street protests in response to what they call a growing appetite for government debt.

“IMF lending to Kenya has helped prevent a financial crisis and put its economy back on track towards financial sustainability,” the U.S. Treasury boss said.

“The pandemic has hit Kenya’s economy hard, exacerbating previous financial weaknesses and debt risks. These efforts have helped the Kenyan economy rise from the Covid-19 shock and make a economic recovery, with growth expected at nearly six percent in both 2021 and 2022.

The US is the largest shareholder in the IMF and has significant influence on the decisions of the Bretton Woods institution.

Kenya’s economy was down 0.3 per cent in 2020, hit by the Covid-19 economic collapse, compared to 5.0 per cent growth in 2019.

The pandemic has hit Kenya’s revenues and limited access to commercial loan markets, forcing the country to turn to the World Bank and IMF for direct budget funding.

The IMF provided Kenya with Sh173 billion between March 2020, when the first Covid-19 case was reported in the country, and December last year.

“The IMF has lent Kenya $ 740 million in rapid emergency funding, which has delivered much -needed liquidity support … In April 2021 the IMF also approved a $ 2 billion, three -year IMF program — funded primarily by by PRGT [poverty reduction and growth trust] – to help Kenya’s economy continue to recover from the scars of the pandemic, ”the U.S. Treasury said.

Kenya avoided direct budget funding from institutions such as the IMF and World Bank during the administration of former President Mwai Kibaki, with most of the money coming in the form of project support.

But the worsening situation of the country’s cash flow at the peak of the pandemic, marked by falling revenues and worsening debt service obligations, forced the country to return to these loans, with conditions attached. theirs.

President Uhuru Kenyatta, who took the lead in 2013, oversaw the rise in public borrowing.

Total debt is at 70 percent of gross domestic product (GDP), up from about 45 percent when he took over-a surge that some politicians and economists say will appease future generations with excessive debt.

The government defended the increased borrowing, saying the country should invest in infrastructure, including roads and railways.

Kenya has agreed with the IMF to stick to concessional finance to reduce debt vulnerabilities which has seen the country turn away from syndicated loans and focus only on multilateral loans and Eurobonds.

Kenya is trying to balance its debt portfolio after a surge in commercial debts that piled up and became expensive to repay, taking in more than 63 per cent of tax revenue.

Concessional and semi-concessional borrowing, including from the IMF and other multilaterals, is part of the Treasury’s plan to limit reliance on external commercial loans in the coming years to reduce the vulnerabilities associated with in debt.

Cheaper loans to the World Bank and IMF have reduced the average value of loans in Kenyans from 9.1 per cent to 6.9 per cent, according to the Parliament Budget Office.

Multilateral loans are relatively cheaper, long -term and have an extended period when Kenya will not have to pay as they clean up bad expensive loans.

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