Kenya has cut its planned borrowing from the International Monetary Fund by 7.2 percent to 465.4 billion shillings ($3.6 billion) after a partial repayment of its first eurobond spooked global investors.
This comes weeks after the size of the country's budget support from the World Bank was reduced by 20 percent to 155.2 billion shillings ($1.2 billion).
The IMF attributed this reduction in the size of credit facilities allocated to Kenya to the partial refinancing in February of Eurobonds amounting to 258.7 billion shillings ($2 billion) due on June 24.
Kenya returned to international markets in February, raising Sh193.9 billion ($1.5 billion) through a fresh issuance of Eurobonds maturing in 2031. These Eurobond proceeds were used to partially buy back Eurobonds due in June. A repurchase is a form of process through which issued securities are repurchased from their holders or investors before the debt specified by the issuer is due.
The downward revision to the size of the IMF program comes seven months after the volume of funds under the same program was increased by 121.3 billion shillings ($938 million) to provide Kenya with access to cheap financing for the retirement of Eurobonds maturing in international markets. It remained inaccessible as the June 2024 due date approached.
“The mission continued virtually to finalize key technical aspects of the agreement including recalibrating access to IMF resources to more closely align with Kenya’s existing needs following its access to international bond markets earlier this year. If approved by the IMF Executive Board , the remaining total access will be adjusted to 135.55 percent of the quota (SDRs $735.77 million, approximately $976 million) which will also include a proposed recalibration of 21.67 percent of the access quota (SDRs). The IMF said in its statement following Concluding the seventh review on June 11, “the Fund will invest $117.6 million (about $156 million) in zero-interest concessional resources under the extended credit facility arrangements.”
The ECF provides medium-term financial assistance to low-income countries with long-term balance of payments problems. Special drawing rights are an international reserve asset created by the International Monetary Fund to supplement the official reserves of its member countries. SDRs are not a currency and can be used to enhance a country's liquidity.
The reduction in the size of the IMF program means that the government now plans to avail a loan of Sh36.3 billion less than earlier expected under the Extended Credit Facility and Extended Fund Facility (EFF) agreement that has been in effect since March 2021.
The EFF program provides financial assistance to countries facing serious balance of payments problems in the medium term due to structural weaknesses that require time to address. To help countries implement medium-term structural reforms, the Extended Facility offers longer program participation and a longer repayment period.
The reduction in the size of the IMF program also means that Kenya's access to the Fund's extraordinary window granted at the end of 2023 has been reversed, implying that the Fund sees the current state of the economy as improved and in less need of emergency financing.
So far, Kenya has received 337.3 billion shillings ($2.6 billion) thanks to the program after six reviews of performance-based payments.
