- Ms Yelllen made the comments last Friday as she urged Congress to approve ATS 503 billion for international plans under institutions like the IMF.
- The US had noted public outcry in Kenya over a series of loans the country had received from the IMF, and had sparked street protests in response to what it called the government’s growing appetite for debt.
- The US is the IMF’s largest shareholder and exerts enormous influence over the decisions of the Bretton Woods Institution.
The US government has revealed that emergency loans from the International Monetary Fund (IMF) saved Kenya’s economy from collapsing as Kenyans protested the rising national debt.
US Treasury Secretary Janet Yellen urged the US Congress to continue supporting the IMF, citing its involvement in Kenya after the economic difficulties of Covid-19 that led to layoffs, wage cuts and business closures.
Ms Yelllen made the comments last Friday as she urged Congress to approve ATS 503 billion for international plans under institutions like the IMF.
The US had noted public outcry in Kenya over a series of loans the country had received from the IMF, and had sparked street protests in response to what it called the government’s growing appetite for debt.
“IBM loans helped Kenya avert a financial crisis and put its economy back on the path of financial sustainability,” said the US Treasury Department chief.
“The pandemic has hit Kenya’s economy hard, exacerbating existing financial vulnerabilities and debt risks. These efforts have helped the Kenyan economy recover from the Covid-19 shock and embark on an economic recovery, with growth expected to be close to six percent in both 2021 and 2022.”
The US is the IMF’s largest shareholder and exerts enormous influence over the decisions of the Bretton Woods Institution.
Kenya’s economy slumped 0.3 percent in 2020, hit by the economic fallout from Covid-19, compared to 5.0 percent growth in 2019.
The pandemic hit Kenya’s revenues and restricted access to commercial credit markets, forcing the country to turn to the World Bank and IMF for direct budgetary financing.
The IMF gave Kenya Sh173 billion 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 emergency aid, which provided much-needed liquidity support… In April 2021, the IMF also approved a three-year, $2 billion IMF program — funded primarily through the PRGT [poverty reduction and growth trust] – to help Kenya’s economy make a sustainable recovery from the scars of the pandemic,” the US Treasury Department said.
Kenya had steered clear of direct budgetary funding from institutions such as the IMF and World Bank during the tenure of former President Mwai Kibaki, with much of the money coming in the form of project support.
But the country’s deteriorating cash flow situation at the height of the pandemic, marked by falling revenues and worsening debt service obligations, has forced the country to return to these conditional loans.
President Uhuru Kenyatta, who took the helm in 2013, has overseen a surge in public borrowing.
Total debt is 70 percent of gross domestic product (GDP), up from about 45 percent when he took office — a surge that some politicians and economists say will leave future generations with too much debt.
The government has defended increased borrowing, saying the country needs to invest in infrastructure, including roads and railways.
Kenya agreed with the IMF to stick with concessional financing to reduce debt vulnerabilities, which has led the country to move away from syndicated loans and focus only on multilateral loans and Eurobonds.
Kenya is trying to balance its debt portfolio after mounting a tide of trade debt that has become expensive to repay, eating up more than 63 percent of tax revenues.
Borrowing on concessional terms, and some concessional terms, including from the IMF and other multilateral organizations, is part of the Treasury Department’s plan to limit reliance on external commercial credit in the coming years to reduce debt-related vulnerabilities.
Cheaper borrowing from the World Bank and IMF has cut the average cost of Kenyan borrowing from 9.1 percent to 6.9 percent, according to the parliament’s budget office.
The multilateral loans are relatively cheaper, have a long maturity and a grace period during which Kenya does not have to pay as they replace the bad, expensive loans.