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IMF approves $606 million disbursement for Kenya: What you need to know

The IMF has approved a $606 million disbursement to support Kenya's economic stability and climate resilience amid fiscal challenges and revenue shortfalls.

Treasury CS John Mbadi with IMF Representative in Kenya Selim Cakir on August 14, 2024

The International Monetary Fund (IMF) has approved a combined disbursement of approximately $606 million to Kenya, following the conclusion of its seventh and eighth reviews under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF).

However, Kenya’s 2024/25 borrowing plan anticipated a higher disbursement of $874 million.

This disbursement is intended to support Kenya's ongoing efforts to rebuild its fiscal reserves, stabilise its economy, and strengthen resilience to climate-related shocks.

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Kenya will receive around $485.8 million under the EFF/ECF arrangements and an additional $120.3 million under the Resilience and Sustainability Facility (RSF).

This financial backing comes as the nation faces significant revenue shortfalls and heightened debt obligations, which continue to strain its fiscal stability.

With this support, the IMF hopes to aid Kenya in restoring market confidence and facilitating faster foreign exchange reserve accumulation, following a period of exceptional financial pressure earlier this year.

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Despite the progress in stabilising the Kenyan shilling and improving foreign reserves, fiscal consolidation has been hindered by a substantial tax revenue shortfall in FY2023/24.

Public resistance to more taxation following protests against the Finance Bill 2024, has complicated the government's efforts to balance public spending with its substantial debt obligations.

The IMF’s report stresses the need for Kenya to enhance governance, transparency, and accountability to bolster public trust and secure the necessary revenue to meet these challenges.

The IMF underscored the importance of a strategic fiscal adjustment to address Kenya’s debt vulnerabilities while safeguarding critical spending in social and development sectors.

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Key reforms outlined include refining Kenya’s tax system to make it more equitable, enhancing public financial management, and implementing climate-focused strategies under the RSF arrangement to attract private climate finance.

"Kenya’s economic resilience is commendable," noted IMF’s First Deputy Managing Director, Gita Gopinath.

She emphasised that the EFF, ECF, and RSF arrangements are crucial for maintaining Kenya’s macroeconomic stability while addressing climate risks.

However, she acknowledged that recent fiscal and export revenue shortfalls have heightened debt vulnerabilities, and underscored the importance of a credible fiscal consolidation strategy to achieve sustainable growth.

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The IMF highlighted the need for Kenya to advance governance reforms, tackle fiscal vulnerabilities, and address emerging financial sector risks.

The Central Bank of Kenya’s proactive measures have contributed to price stability and reinforced external resilience.

Nevertheless, the IMF calls for a more agile fiscal strategy, emphasising that contingency planning will be critical to adapt to evolving economic conditions and ensure program objectives are met.

This latest disbursement and strategic guidance from the IMF signify continued international support for Kenya’s economic reform agenda, which seeks to lay a stable foundation for long-term growth and development.

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