IMF Reaches Staff Level Agreement With Kenya on $976m Facility, Urges Fiscal Consolidation

Kenya has secured a significant financial boost after reaching a staff-level agreement with the International Monetary Fund (IMF).

This agreement paves the way for the disbursement of approximately $976 million to the East African nation.

According to a recent statement by the IMF, approval of a second review for Kenya’s Resilience and Sustainability Facility (RSF) would grant the country immediate access to an additional $120 million.

The IMF also urged Kenya to revise its 2024/25 budget to generate more revenue, as a worsening in the primary fiscal balance in the previous financial year and a tax collection shortfall was expected to keep domestic borrowing needs high.

Although Kenya has been facing liquidity challenges since 2022, it managed to sell a new $1.5 billion Eurobond from international markets in February, albeit at a steep price, to partly buy back another Eurobond that is maturing in June.

The issuance assuaged investor concerns about a potential default, restored foreign investors confidence in the economy and caused the shilling currency to strengthen against the dollar.

The IMF expressed optimism about Kenya’s fiscal adjustments for 2024/25 could remedy the situation.
“Authorities have taken decisive steps towards fiscal consolidation by introducing several measures in the context of the draft 2024/25 Budget and the 2024 Finance Bill,” it added.
The finance minister is due to present the 2024/25 (July-June) budget to parliament on Thursday.

Kenya’s Parliament approved higher spending for the current fiscal year ending in June 2024. The total budget approved is 4 trillion Kenyan shillings ($31 billion), which represents an increase from the 3.75 trillion shillings the minister presented last June for the 2023/24 year. That budget was later adjusted to 3.85 trillion shillings.

The 2024/25 budget will be accompanied by the Finance Bill 2024, a separate law outlining revenue-raising proposals which some critics say some could cripple sectors including financial services, transport, manufacturing and retail.

Kenya’s current IMF deal, which is for a total of $3.6 billion, was agreed in April 2021. The current review is the seventh under the program.

Last week, the central bank governor said Kenya will use part of a $1.2 billion World Bank  budget support loan to make a payment of roughly $500 million on a Eurobond maturing this month.

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