Economy
Kenya gets a Sh162 billion loan from the International Monetary Fund on tax reforms
Tuesday, May 23, 2023
The National Treasury building in Nairobi in this photo taken on March 15, 2023. Photo | Denis Onsongo | NMG
Kenya will receive an additional MYS 162.5 billion under a 38-month program with the International Monetary Fund (IMF) after President William Ruto demonstrated unwavering commitment to implementing the tough tax policies agreed with the Washington-based global lender.
This means that Nairobi will get 484.9 billion shillings ($3.52 billion) worth of loans after it requested two additional credit facilities, boosting its efforts to replenish foreign exchange reserves.
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By the time the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements are approved in April 2021, the program is capped at Sh322.4 billion ($2.34 billion).
This is an increase of Sh162.5 billion, as President Ruto’s administration receives more money from the International Monetary Fund to combat drought and climate-related challenges.
This is even as the International Monetary Fund, in a staff report, praised Dr. Ruto’s new tax proposals, stating that they would help the government reduce its budget deficit.
In a statement, the IMF noted that the new revenue-raising measures were “significant”.
“The authorities responded quickly to the challenges. On the fiscal side, government spending has been prudently implemented this fiscal year, consistent with available resources,” said Haymanot Tefera, who led the IMF mission to Kenya.
Furthermore, the draft budget for fiscal year 2023/24 submitted to the House of Representatives proposes to further reduce the deficit from 5.7 to 4.1 percent of gross domestic product (GDP), with significant new revenue measures consistent with the goal of lowering the debt-to-product ratio. Total. . “
Some of the proposals previously recommended by the IMF, and included by the Treasury Department in the 2023 Finance Bill, include increasing the value-added tax (VAT) to 16 percent from the current eight percent.
Kenya has also proposed increasing the excise tax on beauty products such as fake nails and wigs, and betting.
Pay as you earn for people earning more than half a million a month has also been increased to 35 percent.
The increase in the EFF/ECF program, or additional funds for shocks such as drought approved in the Fourth Review, was Sh74.4 billion ($544.3 million).
In the recently completed Fifth Review, Kenya also requested about Sh86.9 billion ($636 million) under a new 20-month Resilience and Sustainability Facility (RSF) arrangement.
The 38-month program aims to help Kenya reduce debt vulnerabilities by increasing revenue and cutting spending, including payments to state companies such as Kenya Airways and Kenya Power.
Subject to approval by the IMF’s Executive Board, Kenya will receive another 56.5 billion shillings ($410 million) from the IMF in July.
On Tuesday, the International Monetary Fund said its staff and Kenyan authorities had agreed on economic policies and reforms to complete the fifth review of Kenya’s EFF and ECF arrangements.
The disbursement of funds, subject to IMF Executive Board approval, will help replenish Kenya’s dwindling foreign exchange reserves.
The agreement is subject to IMF management approval and consideration by the Executive Board, expected in July. Upon completion of the fifth review by the IMF Executive Board, Kenya will have immediate access to SDR 3.06.7 million (approximately US$410 million), including from increased access under the ECF/EFF,” said Ms. Tefera.
Kenya has also entered into a new 20-month program with the International Monetary Fund to fund most projects related to climate change.
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This is in addition to increased access to about $544.3 million that the country is supposed to benefit from to help deal with shocks such as drought.
If this spending is approved, the total IMF financial support disbursed under the EFF and ECF arrangements will rise to Sh275.5 billion (US$2,017 million).
With the EFF/ECF build-up and RSF support, the total IMF commitment under these arrangements will be Sh480.8 billion ($3.52 billion).
Through the new Resilience and Sustainability Facility (RSF) arrangement, which will be run concurrently with the EFF/ECF arrangement, Kenya has requested that the existing facility be extended for another 10 months to April 2025.
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