IMF Raises Kenya’s Economic Growth Forecast for 2021 to 7.6%
The International Monetary Fund has raised Kenya’s 2021 economic growth forecast from 4.7% to 7.6% after reaching a financing agreement with Kenyan authorities.
On February 16, 2021, the IMF revealed that it had reached a 3-year $2.4 billion financing agreement with Kenya to support the country’s COVID-19 response and reduce the level of debt relative to the GDP.
The IMF program is based on revenue-led fiscal consolidation and strong economic growth. Kenya expects a steady increase in tax revenue from the main tax revenue streams: income tax, value-added tax, import duty, and excise duty as the economy slowly returns to pre-pandemic growth levels.
Analysts at Citi Research do not share the IMF’s highly optimistic outlook on Kenya’s GDP growth. The analysts describe the IMF’s forecast as extremely aggressive and expect Kenya’s economy to expand at 4.9% in 2021.
Although some lawmakers and analysts are against the issuance of a Eurobond due to the high-interest cost, Kenya’s 2021 Budget Policy Statement shows that the country plans to issue Kes 123.8 billion Eurobond before the end of the fiscal year ending in June 2021, and Kes124.5 billion Eurobond in the coming fiscal year 2021/22.
Additionally, the National Treasury intends to use external re-financing options of Kes 220 billion in the current fiscal year ending in June 2021 and Kes 351 billion in the next fiscal year.
According to Citi Research, the Central Bank of Kenya may be one of the first central banks in Africa to raise its monetary policy rate in 2021. The country aims to increase domestic debt issuance. The move will “act as a potential barometer for the potential policy response of other central banks across the continent,” said Citi.