The International Monetary Fund has approved Sh9.4 billion for immediate release to Kenya under the Extended Credit Facility arrangement agreed on last year.
This is after the IMF completed the fourth review of Kenya's economic programme under the three-year facility, bringing total disbursement under ECF to about Sh45 billion.
Kenya's request for a waiver of penalties arising from it overlooking one of the conditions for the ECF - not to accumulate external debt up to end of June 2012 - has been approved.
The IMF has also agreed to modify Kenya's performance criteria for the facility for the next 12 months to fit a revised macroeconomic outlook.
The IMF said Kenya's economy is rebounding after slowing down in 2011/12 period, helped by improved macroeconomic stability, foreign investment in oil and natural gas exploration and favourable weather conditions.
"Inflation has declined substantially, net international reserves have increased, public debt is low and pressures on the exchange rate have dissipated," said deputy managing director and acting chair Naoyuki Shinohara.
But though Kenya has made progress in reducing its economic vulnerabilities, he said, downside risks remain because of global uncertainties and spending pressures in the run-up to the March 4, 2013 elections.
The IMF now wants Kenya to resist these pressures through fiscal discipline. "Going forward, it will be important to maintain policy discipline to build on the accomplishments so far," said Shinohara.
It is expected that the new Public Finance Management law will help strengthen expenditure control, re-orient spending toward priority sectors and improve fiscal transparency.
The IMF said looking forward, risks to the ECF arrangement may arise from a weakened global financial condition and rising oil prices, which could derail Kenya's favourable economic performance.
"Further efforts to build policy buffers should enhance Kenya's economic resilience and ensure a sustained and strong economic expansion," he said. He cautioned the Central Bank to watch out for new inflationary pressures that may emerge from higher global food and fuel prices.