Tighten your belts, IMF warns after new Sh150b loan to Kenya

Kenya will receive an immediate disbursement of Sh99.8 billion as part of the loan arrangement. [iStockphoto]

Hard-pressed Kenyans should tighten their belts further after the International Monetary Fund (IMF) predicted the cost of living is expected to remain elevated for the next six months.

The IMF made the gloomy prediction after it approved a $941 million (Sh150 billion) loan to Kenya, with an immediate disbursement of $624.5 million (Sh99.8 billion).

The Kenya Kwanza administration is under pressure to put measures in place to shield consumers and companies from the full impact of surging energy and food costs this year.

IMF’s prediction flies in the face of this wish by a majority of Kenyans. Inflation, which is the cost of living measure, has been on an upward trend since the beginning of 2023.

It peaked in July at 8.3 per cent but declined to 6.6 per cent in December.

“The near-term outlook is one of continued resilience with growth projected at around five per cent in 2024 amid ongoing adjustments in the fiscal policy and external accounts,” said the IMF.

“Inflation is expected to inch up in the first half of 2024, driven primarily by global oil price volatility and exchange rate passthrough but to remain contained due to the recent monetary policy tightening and as the authorities strive to deliver a stronger fiscal consolidation to stabilize the overall public debt/GDP in 2024.”

Inflation ticked down to 6.6 per cent in December from November’s 6.8 per cent.

December’s reading represented the lowest inflation rate since April 2022. The moderation was largely due to softer price growth for transport housing and utilities, which outweighed increasing price pressures for food and non-alcoholic beverages.

The Central Bank of Kenya (CBK) has responded to inflation concerns by implementing a significant increase in interest rates, a move that the National Treasury acknowledged could potentially push the economy into a recession.

Kenyans are forking out more to purchase basic commodities as the shilling continues to weaken due to external pressures.

The depreciation has piled pressure on the prices of essential commodities.

A weakening shilling, which hit a new record low yesterday of Sh160.79 according to the banking regulator, has also caused pain to importers and consumers across the country, hindering the government’s efforts to rein in the stubborn cost of living.

The financial hardships pose an economic and political problem for President William Ruto’s administration, which was elected on a platform to lower the cost of living, rattling its support base.

The IMF said the latest disbursements under its Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes will also be topped by a release of $60.2 million (Sh9.6 billion) under its Resilience and Sustainability Facility (RSF) arrangement.

The government yesterday welcomed the IMF loan boost, saying it would offer crucial relief as Kenya battles financial pressures.

“This approval of the sixth review has triggered an immediate disbursement of $624.5 million under the EFF/ECF and an additional disbursement of $60.2 million under the RSF giving a total disbursement of $684.7 million,” said Treasury Cabinet Secretary Prof Njuguna Ndung’u.

“These resources will help maintain macroeconomic stability and fortify resilience against external shocks by improving our external reserves, providing essential budget support, and strengthening climate resilience efforts.”

By Brian Ngugi 23 hrs ago
Locked out: Survey shows Kenyan women struggle to access loans
By Brian Ngugi 23 hrs ago
Africa and Caribbean nations to deepen trade ties at summit
Africa and Caribbean Nations set to deepen trade ties at Bahamas summit
Role of corporate stewardship in advancing quality of water