Kenya's financial relationship with the International Monetary Fund (IMF) is under the microscope as the government faces growing discontent from the public. Despite the frosty ties, Nairobi is not ready to walk away from the IMF just yet.
The Treasury has signalled that negotiations for a fresh deal are still on the table, with a decision on the next program expected when the current arrangement expires in April 2025. Amid mounting pressure, Treasury Principal Secretary Chris Kiptoo revealed that Kenya would determine its path with the IMF after the expiry of the current $3.6 billion loan.
In an interview with Bloomberg on Friday, September 27, Kiptoo stated Kenya had “not reached such a decision yet” and will make a pronouncement “on the nature of the next programme with IMF after the end of the current programme in April.”
Why it matters: Kenya's continued engagement with the IMF matters because it directly impacts the country's economic stability and public welfare. The IMF's stringent loan conditions, which prioritise fiscal discipline and debt repayment, often clash with the government's ability to address urgent social and economic needs, such as job creation and poverty alleviation.
Dig deeper: Kiptoo told the publication, “The IMF “remains an important development partner.”
With a growing budget deficit, rising public protests, and increasing foreign debt, the government's negotiations with the IMF will determine not only its ability to secure crucial funding but also its capacity to implement policies that benefit everyday Kenyans.
The loan, signed in 2021, has come with a heavy burden of strict conditions that have sparked public uproar. Critics argue that the IMF prioritises Kenya's debt obligations over the well-being of its citizens, despite its claims to support economic and social reforms.
The IMF's financial support, which is tied to reforms such as the privatisation of State-owned enterprises (SOEs), now faces a potential roadblock. A recent High Court ruling declaring the Privatisation Act, 2023 unconstitutional could further derail Kenya's efforts to unlock Ksh77.5 billion in IMF funding. The court’s decision throws a spanner in the works as the IMF had insisted on comprehensive reforms of SOEs as a condition for its support.
Kenya has walked this tightrope before. In 2018, the country had a $1.5 billion stand-by credit facility with the IMF but did not tap into it. This time around, the stakes are higher.
President William Ruto’s administration is grappling with the economic fallout from nationwide protests, which forced the government to abandon critical tax measures expected to raise Ksh346 billion. This has widened the budget deficit, now standing at 4.3 per cent of the GDP for the current fiscal year, well above the IMF programme target of 3.3 per cent.
To fill this gap, the government is turning to foreign lenders and ramping up domestic borrowing. Central Bank of Kenya (CBK) Governor Kamau Thugge acknowledged the difficulty in meeting revenue targets, despite progress in other areas of the IMF programme.
The government, according to Thugge, has met targets on international reserves but continues to struggle on the revenue front, missing crucial targets in both December 2023 and June 2024.
The failure to meet revenue targets has forced the government back to the negotiating table with the IMF. The recent collapse of the Finance Bill, 2024 has complicated efforts to stabilise the country's fiscal outlook, leading to a renegotiation of new revenue goals with the IMF.
Meanwhile, the IMF has reiterated its commitment to helping Kenya navigate its fiscal challenges, following a fact-finding mission to the country last week.
The uncertainty surrounding the privatisation programme is likely to delay any new funding from the IMF, a situation that could push Kenya deeper into financial difficulties.
