Kenya has reached an agreement with the International Monetary Fund (IMF), marking a significant milestone. The agreement is expected to pave the way for a financial disbursement that could provide a boost to the nation’s economy. Once approved by the IMF’s Executive Board for the second review of the country’s Resilience and Sustainability Facility, the agreement could unlock approximately $976 million for Kenya, with immediate access to $120 million.
The IMF has emphasized the importance of fiscal adjustments, urging Kenya to restructure its 2024/25 budget to enhance revenue-raising measures. This advice follows a tax collection shortfall and an increase in the primary fiscal balance deficit from the previous financial year, which have contributed to high domestic borrowing needs.
Despite facing liquidity challenges since 2022, Kenya demonstrated its resilience by issuing a $1.5 billion Eurobond in international markets in February. This move helped manage an existing Eurobond maturing in June, restored confidence among foreign investors, strengthened the Kenyan shilling against the dollar, and mitigated concerns about a potential default.
The IMF’s call for fiscal adjustments for the fiscal year 2024/25 highlights the need for comprehensive economic strategies to address these financial challenges. The finance minister is expected to present the budget to parliament soon. The proposed overall spending for the year is 4 trillion shillings ($31 billion), reflecting an increase from the initially proposed 3.75 trillion shillings last June for the 2023/24 fiscal year, which was later adjusted to 3.85 trillion shillings.
The 2024/25 budget will also introduce the Finance Bill 2024, outlining new revenue-raising initiatives. However, some critics argue that these proposals could have a negative impact on sectors such as financial services, transport, manufacturing, and retail.
The current IMF program began in April 2021 with a total package of $3.6 billion. This review is the seventh under the plan. In addition to IMF support, the Central Bank governor indicated last week that Kenya plans to use part of a $1.2 billion World Bank budget support loan to cover approximately $500 million of a Eurobond payment due this month.
These financial operations are part of Kenya’s broader strategy to ensure economic stability and growth. They emphasize the government’s commitment to implementing robust financial governance and securing international support to meet its economic objectives.
