An International Monetary Fund standby loan of $1.5 billion is credit positive for Kenya, with an accompanying program helping East Africa’s biggest economy maintain macroeconomic and institutional reforms, Moody’s Investors Service said.
The two-year precautionary facility, which Kenya can only draw from in an emergency, provides a buffer for the nation’s external vulnerability, Rita Babihuga, Moody’s lead country analyst, said Monday in a statement.
“By targeting a reduction in the fiscal deficit of 3 percent of GDP over the next two years as well as continued public financial management reforms, the IMF program further commits Kenya to its stated objective of fiscal consolidation and will help prevent policy slippages, particularly as the country approaches general elections in 2017,” Babihuga said.
The $55 billion economy has expanded in the past few years mainly because of infrastructure projects including new roads and a $3.2 billion railway. As a result, its fiscal gap and current-account deficits have widened. The shortfalls have led to increased domestic and external debt and a decline in the nation’s debt affordability, Moody’s said.
The government plans to reduce its fiscal deficit to 4.3 percent of gross domestic product in fiscal 2018, and 3 percent by 2020 from 6.9 percent in 2016, Moody’s said.