President William Ruto’s government has received a major boost following an update by the International Monetary Fund (IMF) on the $606 million (Ksh78 billion) disbursements intended for Kenya.
IMF in a statement on October 30 announced that its Executive Board has completed the review of Kenya’s economic programs and in turn approved $606 million in combined disbursements.
This came as the Executive Board of the IMF on Wednesday concluded the seventh and the eighth reviews under the Extended Fund Facility (EFF) and the arrangement under the Extended Credit Facility (ECF), approved in April 2021, and a review under the Resilience and Sustainability Facility (RSF) arrangement, approved in July 2023.
“The Executive Board’s decision allows for the immediate disbursements of SDR365.28 million (about US$485.8 million) under the EFF/ECF arrangements and SDR90.47 million (about US$120.3 million) under the RSF arrangement,” part of the statement reads.
According to the International Monetary Fund, the financing will support efforts to strengthen public finances and enhance resilience to climate shocks, while protecting priority social spending.
In addition, the Board approved a reduction in the total access under the EFF/ECF arrangements from exceptional access, approved in January 2024 to within the normal access limits and a rebalancing of access toward the zero-interest ECF arrangement.
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This came following the resolution of exceptional financing needs by IMF earlier this year.
IMF said that these adjustments would lower Kenya’s interest payments to the IMF.
IMF statement on Kenya’s economy
Under the EFF/ECF arrangements, IMF’s financial commitment stands at SDR2.714 billion (about US$3.61 billion), of which SDR2.343 billion (about US$3.12 billion) has been approved for disbursement.
For the RSF arrangement, the corresponding amounts are SDR407.1 million (about US$541.3 million) and SDR135.70 million (about US$180.4 million), respectively.
In completing the reviews, the Executive Board recognized that the resolution of the exceptional external financing pressure earlier this year has revived market confidence, supporting stabilization of the shilling and facilitating faster buildup of reserves.
The Board also completed review under the RSF arrangement and approved the disbursements associated with two reform measures implemented.
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IMF First Deputy Managing Director and Acting Chair, Gita Gopinath in a statement expressed optimism on the Kenyan economy and said that the arrangements will help anchor macroeconomic stability among other challenges.
“Kenya’s economy remains resilient, with growth above the regional average, inflation decelerating, and external inflows supporting the shilling and a buildup of external buffers, despite a difficult socio-economic environment,” said Gopinath.
She added, “The EFF/ECF and the RSF arrangements continue to support the authorities’ efforts to anchor macroeconomic stability, reduce debt vulnerabilities, promote reforms, and mitigate climate-related risks.”
Fiscal consolidation and other approvals
The IMF, however, said that the fiscal consolidation efforts have faced headwinds following a sizable tax revenue shortfall in FY2023/24 and withdrawal of the 2024 Finance Bill after widespread public protests.
“Nevertheless, the EFF/ECF program has delivered on reducing inflation, strengthening external buffers, and stabilizing the exchange rate,” the statement adds.
The IMF Board has also approved waivers of non-observance for the end-December 2023 tax revenue and the end-June 2024 primary budget balance and tax revenue targets based on the corrective action taken through the passage of the Supplementary FY2024/25 budget.
According to the Monetary Fund, the Supplementary FY2024/25 Budget together with medium-term fiscal consolidation will help reduce debt vulnerabilities, a core objective of the program.
The development comes after the Central Bank of Kenya (CBK) Governor Kamau Thugge earlier in October revealed that the country is set to receive Ksh244.15 billion from IMF.
Thugge said that the disbursement is expected before the end of December 2024, following an agreement with the National Treasury.
He highlighted those intensive discussions with the IMF had led to significant progress, including combining the 7th and 8th reviews of Kenya’s financial performance.
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