IMF set to boost Kenya with $938 million loan

The International Monetary Fund (IMF) has agreed to a new $682.3 million (Sh103.9 billion) and an increase in its current program’s funding by $938 million to support Kenya’s balance of payments  (Sh142,8 billion) and fiscal financing requirements amid acute liquidity caused by the uncertainties in accessing global financial markets.

The facility follows a Staff-Level Agreement on Sixth Reviews of the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangement’s and the first review under the Resilience and Sustainability Facility (RSF). It brings to $2.68 billion (Sh408 billion) the total disbursement under the arrangements.

The country’s financial situation has been under strain, as the National Treasury readys to settle a $2 billion (Sh304 billion) Eurobond which matures in June next year. The national coffers are also still reeling from the post-Covid-19 economic downturn and frequent climate change-induced droughts which have negatively impacted the balance of payments and fiscal financing requirements.

Global financing

Approval of disbursement is subject to the IMF’s board decision in January 2024, the Brettonwoods institution said in a statement yesterday. The IMF staff team led by Haimanot Teferra has been in the country since October 30 and completed the review on November 15.

“The tightening global financing conditions for frontier economies and global geopolitical tensions are compounding the challenges from the legacy of the pandemic and multi-season drought, further straining Kenya’s balance of payments and fiscal financing requirements. The authorities’ strong reform program aims to enhance macroeconomic stability and restore confidence to ensure access to the international bond markets,” Teferra said.

To mitigate the dire financial pressure, Kenya is actively mobilising additional financing from their development partners, the IMF and commercial sources while concurrently intensifying its efforts to enhance macroeconomic policies and implement structural reforms.

 “Steadfast implementation of a package of mutually reinforcing policies remains key to sustain macroeconomic stability, anchor market confidence, continue to deliver on the programme’s objectives, and bolster Kenya’s medium-term prospects. A tighter fiscal stance is envisaged under the programme to help reduce debt vulnerabilities and achieve a PV debt/GDP of 55 per cent, the authorities’ debt anchor, by 2029,” Teferra said.

Teferra said achieving these objectives will entail timely implementation of reforms to broaden the domestic tax base and improve tax compliance to achieve authorities’ revenue objectives of reversing the trajectory of the tax revenue-to-gross domestic product (GDP) ratio while promoting equity and fairness in the tax regime.

This is in addition to expenditure rationalisation to enhance the efficiency of public investments, better targeting of subsidies and transfers, addressing weakness in State corporations and digital delivery of public services, even as the social safety nets and fiscal risk management framework needed to be further enhanced.