The International Monetary Fund approved $739 million in emergency funding for Kenya and $491.5 million for Uganda and said the coronavirus pandemic was likely to exact a severe toll on the two East African economies.
The Rapid Credit Facility will boost Kenya’s international reserves to help cover balance of payments shortfalls this year. It will also provide resources to boost public health and support for households and companies hit hard by the crisis, the IMF said in an emailed statement.
“The impact of Covid-19 on the Kenyan economy will be severe,” the IMF said. “The sudden shock has left Kenya with significant fiscal and external financing needs.”
The pandemic has damaged almost all sectors of the region’s biggest economy. Agriculture, which accounts for about a third of overall output, has been hit hard with a plunge in the export of cut flowers, fruits and vegetables. Tourism, the third-biggest foreign-exchange earner after remittances and farm shipments, has dried up.
While the move to pause fiscal-consolidation plans amid the pandemic is appropriate, the IMF urged Kenyan authorities to pursue growth-friendly measures, such as strengthening revenue collection, once the crisis subsides to reduce debt vulnerabilities.
In Uganda, where strict surveillance measures have helped limit the spread of the virus, the pandemic has added to the challenges of heavy rain and an ongoing locust invasion, the IMF said. As in Kenya, a temporary widening of the fiscal deficit is justified to allow for a response against the crisis, it said.
“Despite a temporary worsening of debt indicators and heightened vulnerabilities, public debt is expected to remain sustainable,” the IMF said of Uganda.
Africa’s biggest coffee exporter had public debt of $13.5 billion at the end of 2019 and foreign creditors accounted for about 65% of that. The government projects a budget deficit at 8.7% of gross domestic product by the end of June.
The World Bank estimates Kenya’s public debt will increase to about 6.4 trillion shillings ($60.3 billion) this fiscal year, or 63.1% of GDP, from 5 trillion shillings four years ago, when it was equivalent to 53.8% of GDP.