UPDATE 1-IMF, Kenya reach agreement on 3-yr, $2.4 bln financing package

(Adds detail, background, analyst comment)

By George Obulutsa

NAIROBI, Feb 15 (Reuters) - The International Monetary Fundand Kenya have reached a staff-level agreement on a three-year$2.4 billion financing package, the fund said on Monday.

It said the funding will be under its Extended Fund Facilityand Extended Credit Facility arrangements and will be subject toits management approval and Executive Board consideration in thecoming weeks.

"The program will support the next phase of the country’sCOVID-19 response and the authorities’ plans for a strongmulti-year effort to stabilise and begin reducing debt levelsrelative to GDP," the IMF said in a statement.

The fund said it also forecast Kenya's economic growth torebound to 7.6% in 2021, from a contraction of 0.1% last year,helped by school re-openings and the removal of coronavirusrestrictions.

For nearly two years, Kenya has abandoned expensivecommercial debt to cut back on ballooning repayments, whilerevenue collection has been squeezed by the pandemic.

It also faces huge budget deficits that have been deepenedby the coronavirus crisis.

"Markets will be encouraged by this development as itcreates an anchor for Kenya’s fiscal consolidation process,"said Razia Khan, head of research for Africa at StandardChartered in London, adding that for now any fiscalconsolidation will be 'eventual'.

"Perhaps most significantly, the IMF programme – onceapproved by the Executive Board – will aim to stabilise debtthrough the achievement of a primary fiscal surplus."

Last week, the finance ministry said Kenya had to raise itsdebt ceiling of 9.0 trillion shillings to accommodate fiscaldeficits in the coming financial years.

Total debt stood at 7.3 trillion shillings at the end oflast year, equivalent to 65.6% of GDP.(Reporting by George Obulutsa; Editing by Giles Elgood)