The International Monetary Fund and Kenya reached a preliminary agreement to unlock about $1.1 billion.
The funding is under the existing Extended Fund Facility and Extended Credit Facility arrangements.
The staff-level agreement, which is subject to IMF board approval, will give Kenya access to about $976 million.
If approved, Kenya would receive $976 million 135.55% of the country’s quota with the IMF (quota refers to the maximum amount a country can borrow from the IMF).
In addition to $156 million in concessional loans which have zero interest rates and are intended to help low-income countries.
This will bring the total IMF financial commitment to $3.6 billion under the program.
An additional $120 million may be disbursed under a so-called Resilience and Sustainability facility approved on July 17, 2023.
Focus on Reducing Debt, Managing Fiscal Risks
Reducing vulnerabilities is a central objective of a program initially agreed in 2021 with the IMF, which says Kenya is at high risk of debt distress.
“The policy package seeks to preserve debt sustainability and price stability, manage fiscal risks, address financial sector vulnerabilities, and AML/CFT deficiencies while continuing to advance structural reforms to support inclusive and resilient growth,” said Ms Haimanot Teferra who leads the IMF team.
According to the IMF, Kenya’s economic outlook is improving, but the government must address fiscal challenges and implement reforms to ensure long-term stability.
Kenya’s economy showed signs of recovery in 2023, with a growth rate of 5.6%. This was driven by a strong performance in agriculture and a rebound in the services sector following the return of good rains after several years of drought. Inflation has also seen a welcome decline, reaching 5.1% in May 2024.
However, the IMF also identified a shortfall in tax revenue collection, which has led to increased government borrowing. This, coupled with rising interest payments on public debt, has put pressure on Kenya’s fiscal health.
To address this, the IMF recommends a significant fiscal consolidation effort in the upcoming 2024/25 budget. This would involve measures to broaden the tax base, improve tax compliance, and reduce unproductive government spending. Strengthening social safety nets is another key area for improvement.