The International Monetary Fund has reached a staff-level agreement with Kenya, unlocking immediate access to a $682.3 million tranche and boosting the current lending programme by $938 million, the fund said on Thursday.

The Central Bank of Kenya welcomed the facility a critical to offering resilience to the local currency that has been in a freefall sin the past 12 months, triggering inflation and high cost of living. The government has resorted to high taxation to balance its books, eliciting stiff opposition from consumers and the business community.

The East African nation is grappling with acute liquidity challenges caused by uncertainty over its ability to access funding from financial markets before a $2 billion Eurobond matures next June.

Its balance of payments and financial positions have also been strained by the legacy of the Covid-19 pandemic and frequent climate change-induced droughts, the fund said at the conclusion of a two-and-a-half week review mission to Nairobi.

“The tightening global financing conditions for frontier economies and global geopolitical tensions are compounding the challenges,” said Haimanot Teferra, the head of the mission.

Subject to the approval of the Washington-based fund’s executive board, Kenya will have access to a total of $3.88 billion, which would bring its total funding under the existing Extended Fund Facility and Extended Credit Facility arrangements to $4.43 billion, the IMF said.

The current programme, agreed in April 2021, was first bumped up in May by an extra $1 billion, including $544 million under the IMF’s Resilience and Sustainability Facility (RSF) and a new arrangement under the same RSF.

Kenya’s international bonds rose modestly on the news, with the $2 billion note maturing in June 2024 rising the most. It was up 0.43 cents on the dollar to 95.6 cents at 0928 GMT .

Although the deal was widely expected after it was telegraphed by a senior adviser in Kenya’s presidency, it was still being viewed positively, said a Kenyan market participant who did not wish to be named.

The new IMF financing, together with expected funds from the World Bank and regional banks like Afrexim, would allow Kenya to pay maturing foreign debt without running down its hard currency reserves, said the market participant.

The additional money was more than international markets were expecting, said Thato Mosadi, a strategist at Jefferies in London.

“I am very positive that reserves could be higher than $6.5 billion following the payment of the (2024) Eurobond and even more confident now following the IMF’s augmentation,” she said.

• A Reuters report