IMF’s Upcoming Decision on Kenya’s Funding: What You Need to Know

The International Monetary Fund (IMF) is poised to make a significant decision regarding fresh funding for Kenya during its executive board meeting scheduled for October 30. This meeting has generated considerable anticipation in the East African nation, which has been grappling with the repercussions of delayed disbursements from the multilateral lender.

Anticipated Financial Support

Kenya is looking forward to receiving approximately Sh113 billion in the next tranche of loans from the IMF. This funding comes after a breakthrough in lengthy negotiations that had stalled the disbursement of cash from the IMF. The delays were primarily due to the rejection of new tax measures proposed in the Finance Bill, 2024, which were deemed critical for the program’s benchmarks.

Review Process Under the Extended Facilities

The IMF is set to complete both the seventh and eighth reviews under the extended credit facility and the extended fund facility (ECF/EFF). Additionally, the board will conduct the second review of the resilience and sustainability facility (RSF). These reviews are crucial as they determine the financial health of Kenya’s engagement with the IMF and the conditions under which funding is released.

Recent Developments in Negotiations

A staff-level agreement had been reached regarding the completion of the seventh review, but the eighth review was still pending. This situation indicates that a Kenyan mission may need to visit the IMF before the upcoming meeting to finalize the necessary evaluations. Since January, Kenya has not received any funding under these programs, with the last disbursement being Sh88.3 billion ($684.7 million) following the sixth review.

Financial Projections from the National Treasury

The National Treasury has projected that Sh64.4 billion will be disbursed for the seventh review, while an additional Sh48.5 billion is expected for the eighth review. The Central Bank of Kenya (CBK) has indicated that the IMF plans to combine these two disbursements, which is a response to the delays experienced in September regarding the seventh review.

Impact of the Finance Bill Rejection

The rejection of the IMF-backed revenue-raising measures in the Finance Bill, 2024, significantly impacted the funding timeline. This defeat disrupted the program’s benchmark conditionalities, particularly those related to revenue estimates, leading to the postponement of new funding. The combination of the seventh and eighth reviews is anticipated to realign the program, facilitating quicker funding to Kenya as the arrangement approaches its closure date in April 2025.

Recent Consensus Between Kenya and the IMF

The IMF had initially expected to complete the seventh review by the end of July and to start the eighth review in October. However, recent discussions between the National Treasury and the IMF have led to a consensus, particularly following the withdrawal of the contentious Finance Bill, 2024. Treasury Cabinet Secretary John Mbadi, currently attending the IMF autumn annual meetings in the US, confirmed that Kenya and the IMF have found common ground, paving the way for fresh disbursements.

Key Issues Resolved

Mbadi highlighted that the primary issues raised by the IMF have been addressed. One significant factor was the Supreme Court’s decision regarding the Finance Act, 2023. The discussions also revolved around the Finance Bill, 2024, which has been withdrawn, aligning Kenya’s position with the IMF’s expectations.

Future Funding Outlook

As the multi-year program, which was established in April 2021, nears its conclusion, it is expected to release Sh33 billion at the end of the arrangement next year. However, it remains uncertain whether Kenya will seek an extension of this program. The exchequer has consistently viewed the IMF as a vital source of affordable funding, making the upcoming decision all the more critical for the country’s financial landscape.

In summary, the IMF’s upcoming meeting on October 30 holds significant implications for Kenya’s economic recovery and financial stability. The anticipated funding could provide much-needed relief to the nation as it navigates the complexities of its fiscal challenges.