NAIROBI (Reuters) – COVID-19 has exposed Kenya’s debt vulnerabilities though official measures including monetary policy easing have helped shield the economy from the impact of the pandemic, the International Monetary Fund (IMF) said late on Friday.
The Fund said it hoped a deal on a new lending facility for Kenya could be presented to its board in early 2021, noting that economic activity in the East African country was starting to pick up despite a drag from sectors such as tourism.
Measures including lowering interest rates, letting lenders restructure some loans, targeted tax cuts, and programmes to help vulnerable families had “played an important role in cushioning the impact on the economy”, the IMF said in a statement.
“Kenya’s development goals have nonetheless suffered a significant setback… the (COVID-19) shock has also crystallized debt-related vulnerabilities and exposed weaknesses in some state-owned enterprises,” it added.
Earlier this month, the IMF said it was holding talks with Kenya on a new lending facility as the country faces ballooning budget deficits worsened by the coronavirus crisis.
The government has stopped seeking expensive commercial debt to cut back on growing repayments at a time when revenue collection has been squeezed by the pandemic.
There is “broad agreement on the key principles that could underpin a Fund-supported programme to help the next phase of the country’s COVID-19 response and a strong multi-year effort to stabilize and begin reducing debt levels,” the IMF said.
“Remaining issues to firm up include the scope of (state-owned enterprises) weaknesses and plans to revise the budget for FY2020/21 to address these and other pressure points as well as some elements of the medium-term strategy,” it added.
Kenyan Finance Minister Ukur Yatani told Reuters on Wednesday the country planned to join the G20’s Debt Service Suspension Initiative and defer about $690 million in debt payments after it initially declined to do so.
The initiative is aimed at helping poor countries weather the pandemic.
Kenya’s economy shrank 5.7 percent in the second quarter of 2020 year-on-year, its first quarterly contraction since the global financial crisis 12 years ago, as a lockdown to curb the spread of COVID-19 slowed economic activity.
Reporting by Omar Mohammed; Editing by Elias Biryabarema and Helen Popper
Image: The Nairobi skyline is seen in the background as a zebra walks through the Nairobi National Park, near Nairobi, Kenya, December 3, 2018. REUTERS/Amir Cohen