The International Monetary Fund (IMF), after recently concluding the seventh and eighth reviews of Kenya’s economic program under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements, as well as the review under the Resilience and Sustainability Facility (RSF) arrangement, has given the green light for Kenya to access finance in support of its ongoing efforts to strengthen its fiscal and external buffers including enhancing resilience to climate shocks.
This decision by the IMF’s executive board allows for the immediate disbursement of Sh78.03 billion ($606.1 million) to the country. The EFF/ECF arrangements would be providing Sh62.54 billion ($485.8 million), aiming to help the country address its debt vulnerabilities while safeguarding resources for priority social and developmental needs; build resilience to shocks; improve governance and transparency; and support broader economic reforms to realize the country’s medium-term potential.
While the RSF arrangement is to cover Sh15.49 billion ($120.3 million). And it will focus on reinforcing the nation’s strong efforts to address climate-related challenges and catalyze further private climate finance.
Even though, the economy is currently showing resilience with growth rates above the regional average, decelerating inflation, and improved external inflows supporting the shilling, a number of challenges continue to threaten. From the large tax revenue shortfall in FY2023/24 to the masses forcing the withdrawal of the 2024 Finance Bill, the government has difficulty task ahead to boost revenues,protect critical spending in priority areas, and meet heavy debt service obligations.
In accordance to the IMF, Kenya should focus on implementing a credible plan to reduce debt while protecting essential social and development spending, making the tax system more efficient, fair, and progressive, and improving accountability, and efficiency in public finances.
The government should also clearly explain the need and advantages of reforms to gain public support, continue to maintain price stability and external sustainability. Additionally,the institution highlights the need to address banks’ deteriorating asset quality and emerging risks through close monitoring and improved oversight, while promptly carrying out key reforms to boost medium-term potential, especially in governance, anti-corruption, and anti-money laundering/counter-terrorist financing.
The IMF’s total financial commitment under the EFF/ECF arrangements now currently stands at Sh464.76 billion ($3.61 billion), with Sh401.67 billion ($3.12 billion) already approved for disbursement, while that of RSF arrangement stands at Sh69.69 billion ($541.3 million), with Sh23.22 billion ($180.4 million) approved for disbursement.
This has seen the IMF board approve a decrease in the total amount available through the EFF/ECF programs limiting it to within normal access limits. In turn the institution has reallocated the funding more towards the zero-interest ECF arrangement. As a result, in addition to recent changes to IMF charges and surcharges policy, Kenya can expect lower interest payments to the IMF.
This continued support through various facilities aims to help the nation navigate these challenges, build economic resilience, and lay the groundwork for sustainable, inclusive growth. However, success will hinge on the government’s ability to implement difficult reforms while maintaining public trust and protecting vulnerable populations.
