International Monetary Fund (IMF) has approved a $606.1 million (Sh78.2 billion) disbursement to Kenya to support the government’s efforts to rebuild fiscal and external buffers.

The approval by the executive board came after the conclusion of the seventh and eighth review under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) and Review under the Resilience and Sustainability Facility (RSF) Arrangement with Kenya.

“The executive board’s decision allows for the immediate disbursements $485.8 million (Sh62.5 billion) under the EFF/ECF arrangements and $120.3 million (Sh15.4 billion) under the RSF arrangement,” the Fund said in a statement.

Following a resolution of exceptional financing needs earlier this year, the board also approved a reduction in the total access under the EFF/ECF arrangements from exceptional access, approved in January 2024, to within the normal access limits and a rebalancing of access toward the zero-interest ECF arrangement.

With the recent changes to the IMF’s charges and surcharges policy, these adjustments are set to lower Kenya’s interest payments to the Bretton Woods Institution.

The resolution of the exceptional external financing pressure earlier this year revived market confidence, aided stabilisation of the shilling, and enabled a faster build-up of foreign exchange reserves, the board stated.

However, large revenue shortfalls in financial year 2023/24 and pushback against revenue measures owing to governance concerns pose a challenge to the ongoing fiscal consolidation efforts.

Gita Gopinath, First Deputy Managing Director of the IMF and Acting Chair, noted that Kenya’s economy remains resilient, with growth above the regional average, inflation decelerating, and external inflows supporting the shilling and a build-up of external buffers, despite a difficult socio-economic environment.

“The EFF/ECF and the RSF arrangements continue to support the authorities’ efforts to anchor macroeconomic stability, reduce debt vulnerabilities, promote reforms, and mitigate climate-related risks,” Gopinath said.

The board emphasised that sustaining progress requires improving the quality of fiscal adjustment, addressing fiscal and financial sector vulnerabilities, advancing governance reforms, and implementing the structural agenda, including climate-related reforms.

Significant progress
The disbursement comes weeks after the Central Bank of Kenya (CBK) Governor Kamau Thugge revealed that the two institutions have been having discussions to combine the delayed seventh and eighth review for its support programme during a media briefing.

“We have been having discussions with the IMF, and the discussions are really to combine the seventh and eighth review. We have made a lot of significant progress and we are in the final stages of an agreement,” he said.