Kenya Gets $700 Million from IMF as ‘Insurance’ Financing

Financing instruments provide access to IMF resources in event of shocks

Arrangements support program that builds on Kenya’s reform agenda

Helps Kenya’s ascent to middle-income country status

This financing is precautionary, as Kenya plans not to draw on it unless the balance of payments comes under pressure.

The financing package approved by the Board involves “blended access”—combined general and concessional resources comprising a $504.3 million Stand-By Arrangement and a $194 million arrangement under the Stand-By Credit Facility. The move makes available a total of $543 million up front, with the remainder available in two equal tranches upon completion of semi-annual program reviews.

Kenya’s rising income and a track record of access to international markets justifies the country’s eligibility for blended access financing. The frontloaded access is consistent with risks to the outlook tilted to the downside in the near term, in case the economy is affected by a sudden shift in global investors’ risk sentiment, a deterioration of security conditions, or large weather-related shocks.

The new financing package thus represents an effort to tailor existing Fund facilities to the specific insurance needs of the country. This is the first financing package of this type approved by the Fund for a “frontier” market—second-generation emerging market country—in sub-Saharan Africa.

Strong record

Kenya has consolidated macroeconomic stability in recent years: growth has been robust, inflation contained, debt has remained sustainable, and reserve buffers have increased. Kenya has implemented reforms in a market-friendly environment, attracting strong interest from foreign investors operating across East Africa.

As a result, Kenya has consolidated its status as a successful frontier market. A Eurobond debut issue of $2 billion in June 2014 was the largest in sub-Saharan Africa so far, followed by a $750 million re-tap in December at yields 100 basis points lower than at original issuance.

Annual capital inflows have reached about 10 percent of GDP in recent years, lifting international reserve cover to 4 ½ months of prospective imports. Banks are more intensively using medium-term credit lines for small and medium-sized enterprises’ project financing.

The economy expanded by 5.3 percent in 2014 boosted by construction, manufacturing, and retail trade, despite poor rains constraining agriculture growth and security concerns affecting tourism...