Kenya expects to receive Sh113 billion in the next tranche of loans from the International Monetary Fund (IMF) following a breakthrough in protracted talks that delayed funding from the multilateral lender after rejection of new tax measures in June this year.
Estimates from the National Treasury project Sh64.4 billion in disbursements covering the seventh review of Kenya’s programme with the IMF and a further Sh48.5 billion covering the eighth review of the multi-year facilities.
The Central Bank of Kenya (CBK) earlier indicated the IMF would combine the two disbursements following delays in release of monies covering the seventh review in September.
Treasury Cabinet Secretary (CS) John Mbadi said Kenya and the IMF have struck a common ground on benchmarks underpinning the programme including revenue targets.
“We are basically done with the issues they raised, one of which we had no control over which is the decision of the Supreme Court on the Finance Act, 2023. There were also issues around the Finance Bill, 2024 and we told them the bill is defeated and we can’t bring it back and I think they are aligned to that. We may bring some of the provisions back, but we cannot bring the bill back,” he said on Wednesday.
“I am heading to Washington this Saturday for the IMF annual meetings, after that, I think the money will be disbursed,” the CS added.
Rejection of the Finance Bill, 2024 resulted in a widespread fallout including a strain on the Kenya-IMF relationship as the Washington-based lender frowned upon the defeat of tax measures it had backed to deliver fiscal consolidation and debt sustainability- key pillars to the programme reached approved in 2021.
The IMF had been expected to complete the seventh review of its multi-year programme with Kenya at the end of July and initiate an eighth review of the funding framework in October.
The final review of the programme initiated in April 2021 is, meanwhile, set to start in March 2024 ahead of the expiry of both the extended credit and extended fund facilities and the resilience and sustainability fund (RSF).
About Sh66.5 billion in expected funding is expected to be drawn from joint disbursements from the ECF/EFF while the balance is to come from the RSF- a climate-backed facility.
A revised fiscal framework which saw overall spending for the 2024/25 fiscal year slashed to Sh3.88 trillion from Sh3.99 trillion is now expected to anchor the IMF programme, setting the target for the budget deficit at Sh768.6 billion or 4.3 percent of GDP for the period.
In January, the IMF disbursed Sh88.32 billion ($684.7 million) covering the sixth review of the ECF/EFF programme and the first review of the RSF programme. This brought cumulative disbursements under the ECF/EFF to Sh335.38 billion ($2.6 billion).
The new fiscal framework factors lower revenues at Sh3.06 trillion from Sh3.34 trillion prior, mirroring the impact of withdrawn taxes.
The National Treasury expects to receive a further Sh33 billion before June next year at the end of the programme.
Mr Mbadi was unclear on whether Kenya would seek an extension of the programme beyond next year but termed the IMF a key source of concessional funding for the country.
“I don’t think we can sever our links with the IMF if they are still giving us concessional loans to support our budget, we will still work with them. The only thing is we must be realistic. I completely believe that some of the targets that we had set with the IMF were unrealistic. You can’t come from a 5.2 percent deficit to a deficit of 3.8 percent. You can’t increase tax collection by two percentage points in a country as that may cause disturbance. We should be moving gradually to lower our deficit,” he added.
