The IMF signed the one-year arrangement of 497.1 million US dollar Stand-By Arrangement and a 191.2 million US dollar Stand-By Credit Facility on Monday.
“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,” Naoyuki Shinohara, deputy managing director and acting chair of the board said.
“Nonetheless, the economy remains vulnerable to shocks arising from Kenya’s growing integration into global markets, security concerns, and extreme weather events. In this context, the new arrangements with the fund provide a policy anchor for continued reforms, and would mitigate the impact of shocks if they materialize, supporting continued strong growth and poverty reduction.”
Last year, the IMF noted that, “Kenya’s medium-term growth prospects are favorable, supported by rising infrastructure investment in energy and transportation; the expansion of the East African Community market; deepening financial inclusion, which fosters a more dynamic small and medium-sized enterprise sector; and the positive impact of large-size irrigation projects on agricultural productivity.”
Nonetheless, the country still faces challenges of insecurity which has led to a decline in tourism numbers, weather related shocks, slow growth in some sectors and difficulties in implementing devolution.
(READ MORE: Kenya to receive emergency cushion from IMF)
“The Central Bank of Kenya (CBK) has made remarkable progress in bringing inflation toward the mid-point of its target range, aided in part by falling energy prices.”
The country’s overall inflation eased to 5.53 per cent in January down from nearly 50 basis points in the month of December abetted by lower prices of fuel, electricity and key food items. This is the fifth monthly drop in inflation.
Earlier last month, the country’s Energy Regulatory Commission cut the retail prices of petrol, diesel and kerosene significantly on after the cost of importing refined products fell, the fuel prices drop is the highest since ERC was set up four years ago.
Nevertheless, the IMF has warned that the CBK should remain ‘vigilant and act as needed to head off any pressure from rapid credit growth’
The loan is meant to support the government's economic reforms and help it weather possible outside shocks. Kenya’s taking of the precautionary loaning arrangement is part of the measures the government is undertaking to avert a repetition of the shocks that hit its economy in 2011.