By David Lawder

WASHINGTON (Reuters) -The International Monetary Fund said its executive board approved a $235.6 million disbursement to Kenya on Monday as it approved a third review of the country's Extended Credit Facility and Extended Fund Facility arrangements.

The disbursement is usable for budget support and brings such payouts to $1.208 billion under the 38-month arrangements, which were worth $2.34 billion when they were approved in April 2021, the IMF said.

"Kenya’s economy has rebounded strongly in a challenging environment and is projected to grow 5.7% in 2022," the IMF said in a statement, adding that inflation, which hit 7.5% in June, was likely to peak this year before easing back to the Central Bank of Kenya's 2.5% target by early 2023.

"Downside risks predominate in the near-term. Uncertainties stem from the war in Ukraine, continuing drought in the semi-arid regions, unsettled global financial market conditions and the political calendar," the IMF said. "But Kenya’s medium-term outlook remains favorable."

The IMF said that Kenya showed "very strong" performance in tax collections during the 2021/22 fiscal year, which has created fiscal space to temporarily cushion part of the higher fuel and food costs that have hit households while still meeting the program's fiscal targets.

"The approved fiscal year 2022/23 budget broadens tax collection and maintains careful expenditure control while protecting social spending," the IMF said.

(Reporting by David Lawder; Editing by Sandra Maler and Sam Holmes)