Nairobi — The International Monetary Fund (IMF) has approved a disbursement of Sh78 billion (US$605 million) to assist Kenya in bolstering its fiscal and external buffers and enhancing resilience to climate-related shocks.
This decision comes as part of the seventh and eighth reviews under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) arrangements, alongside a review under the recently established Resilience and Sustainability Facility (RSF).
The EFF and ECF programs, originally approved in April 2021, aim to address Kenya's debt vulnerabilities while ensuring adequate resources for essential social and developmental needs.
The RSF, approved in July 2023, specifically targets climate challenges, seeking to catalyze private climate finance.
This funding follows the resolution of exceptional financing needs earlier this year, allowing for a shift in access limits under the EFF/ECF arrangements and reducing Kenya's interest payments to the IMF.
IMF asserted that despite recent improvements, including shilling stabilization and reserve accumulation, the Kenyan government faces significant fiscal challenges mooted by tax revenue shortfall in the fiscal year 2023/24 and the withdrawal of the 2024 Finance Bill after public protests.
According to the IMF, these factors have hampered fiscal consolidation efforts.
Nonetheless, the IMF acknowledged that the EFF/ECF program has contributed to reducing inflation and stabilizing the exchange rate.
IMF's First Deputy Managing Director Gita Gopinath highlighted the resilience of Kenya's economy, which has maintained growth above the regional average.
However, she also noted the need for a credible fiscal consolidation strategy to tackle debt vulnerabilities while safeguarding social spending.
"In this context,a difficult adjustment path lies ahead. A credible fiscal consolidation strategy remains central to addressing debt vulnerabilities while protecting social and development spending," she said.
"Reforms to make the tax regime more efficient, equitable, and progressive as well as strengthening accountability, transparency, and efficiency of public finances will help garner political and societal support for reforms."
President William Ruto's administration has faced hurdles in rolling out its agenda following the deadly gen-z protests that saw him decline to sign into law the 2024 finance bill.
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