International Monetary fund has completed a review of a new loan for Kenya that will see the country access $976 million (Sh126.4 billion) in financing.
However, as part of the loan conditions, IMF wants Kenya to adjust its 2024/25 budget to include more revenue raising measures.
The loan follows a staff level agreement between Kenya and IMF under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements.
IMF said a drop in revenues in the previous financial year and a tax collection shortfall are expected to keep domestic borrowing needs high.
The fund further said that if its Executive Board approves a second review of Kenya's Resilience and Sustainability Facility, it would have immediate access to $120 million (Sh15.5 billion).
The IMF team, led by Haimanot Teferra, said despite the positive developments, a shortfall in tax revenue collection and deterioration in the primary fiscal balance in the current financial year relative to program targets is expected to keep domestic borrowing needs elevated.
“As a result, interest payments have increased, putting pressure on public debt even after the latter benefited from a strengthened shilling,”
“A sizeable and upfront fiscal adjustment in FY2024/25 will be needed to correct the course. To this end, the authorities have taken decisive steps towards fiscal consolidation by introducing several measures in the context of the draft 2024/25 Budget and the 2024 Finance Bill,” said Teferra.
In the latest review, the country’s economic program with the IMF has been scaled down after the partial refinancing of the $2 billion (Sh259bn) Eurobond earlier this year.
The remaining access under the program is now set at 135.55 per cent of Kenya’s IMF quota, down from the initial 175.85 per cent.
This reduction slashes the remaining amount of the program to $976 million (Sh126.4 billion) from the original $1.27 billion (Sh164.5billion).
Since its inception in 2021, the total size of Kenya's IMF program now stands at US$3.6 billion, having previously been $3.88 billion (Sh466billion), excluding the Resilience and Sustainability Facility (RSF).
“After the seventh review of Kenya’s economic program under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements, if approved by the IMF’s Executive Board, Kenya’s remaining access will be adjusted to 135.55 percent of its quota (SDR 735.77 million, about US$ 976 million),” the lender said in the update
This includes a proposed increase of 21.67 percent of the quota (SDR 117.6 million, about US$ 156 million) towards zero-interest concessional resources under the ECF arrangement.
The total IMF financial commitment during the EFF/ECF program will then be SDR 2.71 billion (about US$ 3.60 billion).
Additionally, the second review under the Resilience and Sustainability Facility (RSF), approved on July 17, 2023, would provide about US$ 120 million.
Kenya's current IMF deal, which is for a total of $3.6 billion, was agreed in April 2021 and is the seventh under the program.
Last week, the central bank governor said Kenya would use part of a $1.2 billion World Bank budget support loan to make a payment of roughly $500 million on a Eurobond maturing this month.
