Kenya’s financial architecture agreement with the International Monetary Fund (IMF) is set to suffer a huge setback following the decision by the High Court on Tuesday declaring the Privatisation Act of 2023 unlawful.
According to the agreement between Kenya and the IMF, some financial decisions had to be made by Kenya before the monetary body could approve a loan offer of USD 3.6 billion (Ksh 464.4 billion).
Kenya was committed to ticking some financial decisions among them, the privatisation of the state-owned enterprises that were considered to be making losses before it could be extended the loan facility by the IMF.
This was based on the information that in the financial year 2022/23, 242 entities incurred losses amounting to 0.7% of Gross Domestic Product(GDP).
In the financial year 2022/23, 18 state entities reported negative equity totaling 1.5% of GDP, something the IMF was apprehensive about.
To get the concessional facility from the IMF, the government committed to ensuring key financial decisions including the privatisation of state-owned firms.
The government also committed to making recommendations and actions toward the shutting of some loss-making entities including the transfer of some of those entities that were making profits back to the government.
These decisions were to be made within a confined time frame and to be precise, by October 2024.
‘’To this effect, National Treasury will prepare a report that will (i) include specific recommendations for privatization and/or divestment, as well as for mergers, liquidations or dissolutions, transfers to counties and reversions to government departments, (ii) identify and propose solutions for the main legal and operational challenges and bottlenecks to implement the recommendations, and (iii) establish a time-bound action plan for execution. The report will be published and submitted to the National Assembly by the end of October 2024 (SB),’’ documents from the plan with IMF read in part.
The decision by the High Court to suspend the Privatisation Act 2023 is therefore set to affect Kenya’s commitment to financial reforms to the IMF for loan consideration.
Attention will now shift to the IMF on what response they will offer the government after one of their pre-conditions suffered a setback.
Another glaring loss that the government is staring at is the likely event that the Finance Act of 2023 is declared unconstitutional by the Supreme Court which is set to deliver a ruling on the same.
If the above happens, this will put more pressure on the government in the face of a serious cash crunch that they are struggling with to finance key government programs.
The IMF committed to extend another loan facility during a post-7th Review Exercise between its board members meeting with President William Ruto in August this year.
IMF has been very categorical in the recent past that some of the conditions it set for the government had to be met before they offered any concessional facilities.
Pressure is expected to particularly mount on the government, especially with the recent shelving of the Finance Bill 2024/2025 which also included a raft of key recommendations by the IMF.
