By Andrea Shalal

WASHINGTON (Reuters) – The International Monetary Fund said on Friday that its board had approved new three-year financing arrangements for Kenya worth $ 2.34 billion to help the African country continue to grow respond to the COVID-19 pandemic and address its debt vulnerabilities.

The approval of the new loans under the Extended Credit Facility and the Extended Fund Facility will allow the immediate disbursement of approximately $ 307.5 million which Kenya can use for budget support, adding to the $ 739 million he received in COVID-19 emergency aid in May 2020, the fund said in a report.

The IMF said Kenya’s debt remains sustainable, but poses a high risk of debt distress, and the authorities should focus their short-term program on urgent structural policy challenges.

For nearly two years, Kenya ditched costly commercial debt to reduce skyrocketing repayments, while revenue collection was crushed by the pandemic.

It also faces huge budget deficits which have been made worse by the coronavirus crisis.

“The program supported by the EFF / ECF agreements with the IMF is a strong signal of support and confidence,” IMF Deputy Managing Director Antoinette Sayeh said in a statement. “The Kenyan authorities have demonstrated a strong commitment to tax reforms during this unprecedented global shock, and Kenya’s medium-term outlook remains positive.”

Kenya was hit hard initially by the COVID-19 pandemic, but its economy has recovered after likely experiencing a slight contraction of 0.1% in 2020, the IMF said.

He said he projected strong growth of 7.6% in 2021 and 5.7% in 2022, but said Kenya continued to face challenges in returning to sustainable growth and that its past progress in poverty reduction had been canceled.

The COVID-19 shock had also exacerbated the country’s pre-existing fiscal vulnerabilities, the IMF said, although the Kenyan authorities took steps to keep the budget deficit and debt ratios at 8.7 and 70.4 percent of GDP. , respectively, this exercise.

Supporting a Group of 20 moratorium on debt service payments and development partners will help Kenya close its financing gap in 2021 with funding from capital markets.

Sayeh said Kenya was taking steps to reduce debt risks, but should continue to provide the necessary support to the economy and focus on pressing structural policy challenges, including the financial weaknesses of some state-owned enterprises.

(Reporting by Andrea Shalal; Editing by Chris Reese and Daniel Wallis)