Leveraging Special Drawing Rights (SDRs) for Sustaining Economic Recovery in Kenya

Daniel Omanyo, Hellen Chemnyongoi and Rose Ngugi

Working Papers from African Economic Research Consortium

Abstract: Like most countries in sub-Saharan Africa, Kenya has faced and coped with multiple shocks amid reduced fiscal headroom and increasing public debt vulnerabilities. Other than the COVID-19 global health crisis and the resulting economic effects, Kenya faced the Desert Locust Invasion in 2020, prolonged droughts in 2021 and 2022, and the accompanying high cost of living exacerbated by the spillover effects of the Russian Ukraine war. These developments came when the economy had inadequate domestic resources to sustain the post-COVID-19 recovery momentum, and the mounting debt levels constrained the ability to raise new funding. Recent data indicate that Kenya is rated as a medium performer in terms of Debt Carrying Capacity (DCC) with a high risk of debt distress (National Treasury and Economic Planning, 2023a). The high risk of debt was primarily because of the economic effects of the COVID-19 pandemic contributing to a slowdown of economic growth. It is worsened by high inflation and supply chain disruptions due to the multiple and recurrent shocks the economy faces. During the COVID-19 pandemic, the International Monetary Fund (IMF) supported member countries substantially. This support took multiple forms, including the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI), which provide emergency loans to low-income and middle-income countries facing urgent balance of payments needs. In response to the pandemic, the IMF increased the access limits for RCF and RFI loans to 100% of a members quota and simplified the application process. Many countries used these facilities to finance their urgent health and social spending needs and address the pandemics economic impact. The IMF also reviewed the conditionalities on various facilities, such as the Extended Credit Facility (ECF) and the Stand-By Arrangement (SBA), to provide more flexibility and support to member countries during the pandemic. These efforts allowed countries to use funds under the ECF and SBA to finance their COVID-19-related health and social spending needs (IMF, 2023; ECA & ECLAC, 2022).

Date: 2024-05-06
New Economics Papers: this item is included in nep-cis
Note: African Economic Research Consortium
References: Add references at CitEc
Citations:

Downloads: (external link)
https://publication.aercafricalibrary.org/handle/123456789/3812 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aer:wpaper:1e72ebb1-cf34-460d-ab35-6c791d55be62

Access Statistics for this paper

More papers in Working Papers from African Economic Research Consortium Contact information at EDIRC.
Bibliographic data for series maintained by Daniel Njiru ().