The International Monetary Fund (IMF) has approved $941 million (Ksh.150 billion) loan boost to Kenya.
IMF on Wednesday January 17 approved the loan with an immediate disbursement of $624.5 million (Ksh.99 billion) offering some relief to Kenya amid harsh economic times.
The loan will be disbursed under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs added with $60.2 million (Ksh.9.6 billion) under the Resilience and Sustainability Facility (RSF) arrangement.
This now brings IMF’s total funding commitment to Kenya under all three facilities to more than $4.4 billion (Ksh.704 billion).
“Kenya’s growth remained resilient in the face of increasing external and domestic challenges. The EFF/ECF and RSF arrangements continue to support the authorities’ efforts to sustain macroeconomic stability,” the IMF said in a statement on Wednesday.
The boost will help President William Ruto navigate the maturity of the Eurobond in June amid challenges in accessing the international capital markets.
IMF on Kenya’s Tax to GDP
Besides, a report by IMF revealed that Kenya is the only EAC country that experienced a protracted fall in its tax-to GDP ratio over the last decade.
The report covering the period between 1988 to 2022 showed that other EAC countries have shown either increasing or relatively stable tax to-GDP ratios over the same period except for South Sudan and the Democratic Republic of Congo (oil exporters).
“While remaining above the EAC average, Kenya’s tax-to-GDP ratio has moved from being the highest among the EAC countries in 2012–15 (average values) to being significantly below that of Rwanda and Burundi in recent years,” said the report in parts.
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Covid-19 Pandemic Impact
IMF said the tax ratio fell sharply during the Covid-19 pandemic experienced between 2020 and 2022 due to the introduction of tax breaks to cushion the impact of the shock on the economy.
Further, the report stated that the tax ration started rebounding as the government broadened the tax base consistent with the objectives of the current EFF and ECF arrangements with IMF and reversal of the tax-related COVID-19 measures on January 1, 2022.
“The tax-to-GDP ratio is expected to reach 14.4 percent of GDP in 2023 as the authorities implement their ambitious 2023 Finance Act, which introduces about 1.5 percent of GDP in new tax policy and administrative measures together with additional revenue measures,” read the report.
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Kenya also showed positive net frequency for changes to tax policy including tax rates and tax bases and administrative very infrequently.
“Except in 2012 and 2020, Kenya generally showed a combination of more measures to strengthen tax administrative practices (positive net frequency) and more measures to reduce tax rates and/or narrow.
IMF advised Kenya to strengthen tax collection consistent with the authorities’ objectives of sustained increase in tax revenues to meet their development agenda.
