Kenya expects to receive Sh113 billion in the next tranche of loans from the International Monetary Fund (IMF) after making progress in protracted talks that delayed financing from the multilateral lender after new tax measures were rejected in June this year.
National Treasury’s project estimates are Sh64.4 billion in disbursements covering the seventh review of Kenya’s program with the IMF and an additional Sh48.5 billion covering the eighth review of the multi-year facility.
The Central Bank of Kenya had earlier indicated that the IMF would combine the two amounts after delays in releasing funds covering the seventh review in September.
Treasury Minister John Mbadi said Kenya and the IMF had reached common ground on the criteria underpinning the program, including revenue targets.
“We have basically concluded the issues they raised, which we had no control over which is the Supreme Court decision on the Finance Bill 2023. There were also issues around the Finance Bill 2024 and we told them about the bill. He’s been defeated and we can’t get him back and I think they agree on that. We may return some provisions, but we cannot return the bill.”
“I will be heading to Washington on Saturday to attend the annual meetings of the International Monetary Fund, after which I think the money will be disbursed,” the CS added.
The rejection of the 2024 Finance Bill had wide-ranging repercussions including pressure on the relationship between Kenya and the International Monetary Fund as the Washington-based lender expressed dismay at the defeat of tax measures it had supported to achieve fiscal consolidation and debt sustainability – the pillars The core of the program has been approved for approval in 2021.
The IMF was expected to complete the seventh review of its multi-year program with Kenya at the end of July and begin the eighth review of the financing framework in October.
Meanwhile, the final review of the program, which began in April 2021, is scheduled to begin in March 2024 before both the Extended Credit and Resilience and Sustainability Fund facilities expire.
About Sh66.5 billion of the projected financing is expected to be drawn from ECF/EFF co-payments while the balance will come from the Rapid Support Fund – a climate-backed facility.
The revised fiscal framework that saw overall spending for the 2024/25 fiscal year cut to Sh3.88 trillion from Sh3.99 trillion is now expected to stabilize the IMF programme, setting the budget deficit target at Sh768.6 billion or 4.3 percent. of GDP for this period.
In January, the IMF disbursed 88.32 billion shillings ($684.7 million) to cover the sixth review of the ECF/EFF program and the first review of the Rapid Correspondents programme. This brings the total cumulative disbursements under the ECF/EFF to Sh335.38 billion ($2.6 billion).
The new fiscal framework results in revenue falling to Sh3.06 trillion from Sh3.34 trillion previously, reflecting the impact of withdrawn taxes.
National Treasury expects to receive another Sh33 billion before June next year at the end of the programme.
Mbadi was not clear on whether Kenya would seek to extend the program beyond next year but described the IMF as a major source of concessional financing for the country.
“I don’t think we can break our ties with the IMF if they are still giving us soft loans to support our budget, we will continue to work with them. The only thing is that we have to be realistic. I absolutely believe that some of the goals we set with the IMF were unrealistic. You cannot go from a 5.2% deficit to a 3.8% deficit. You cannot increase tax collection by two percentage points in a country because that would cause disruption. “We must move gradually to reduce our deficit,” he added.
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