The International Monetary Fund has slashed Kenya’s financing by Ksh37 Billion (USD 294 Million) following a staff-level agreement reached by Kenya and the IMF officials.
In a statement issued by the IMF on Tuesday, the IMF stated that the agreement was set to complete the seventh review of Kenya’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements and the second review under the Resilience and Sustainability Facility (RSF) arrangement.
Following the agreement, Kenya's IMF program has been reduced in size leading to a reduction in access to IMF funds from the initial request of Ksh 164 Billion( $1.27 billion) to Ksh 126 Billion ($976 million)
The funds which are issued under the Resilience and Sustainability Facility (RSF) arrangement and the Extended Fund facility are meant to aid Kenya in financing its national debt and maintaining price stability in the market.
“The policy package seeks to preserve debt sustainability and price stability, manage fiscal risks, address financial sector vulnerabilities, and AML/CFT deficiencies while continuing to advance structural reforms to support inclusive and resilient growth,” stated the IMF.
However, the IMF noted that the funding was slashed owing to Kenya’s repayment of a portion of the Ksh258 billion ($2 billion) Eurobond,
The debt was paid in part by the government on February 21, with a deposit of USD1.5 billion (Ksh218 billion) payment as part of the USD2 billion Eurobond loan.
Following this slashing of funds by the IMF Kenya will have immediate access to Ksh15.5 Billion (USD 120 million) once the funds are approved by the IMF's executive board.
However, despite this issuance of the funds by the IMF, Kenya is expected to meet certain conditions;
First, the country is required to focus on revenue generation while reducing its recurrent expenditure, a measure that the government has already taken through broadening the tax base in the Finance Bill of 2024.
“A sizable 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, read the IMF’s statement in part.
Additionally, Kenya will be required to maintain the CBK’s approach in adopting a tight monetary policy which anchors inflation and improves liquidity through foreign exchange and money markets functionality.
