IMF reaches staff-level agreement with Kenya for $1.1bn funding pending board approval

The International Monetary Fund (IMF) and the Kenyan authorities have reached a staff-level agreement on a set of comprehensive policies and reforms needed to complete the seventh reviews of Kenya’s Extended Fund Facility and the Extended Credit Facility arrangements and the second review under the Resilience and Sustainability Facility arrangement. The agreement opens the door for Kenya to receive $1.1 billion in funding, pending board approval. However, concerns have been raised following revelations of a cut in the expected funding amount, signaling challenges in meeting key policy targets. Eric Mokaya from Mwango Capital discussed the implications of this development on CNBC Africa. Mokaya highlighted that there has been a reduction in the program, with the IMF initially expected to provide around $1.3 billion through the seventh, eighth, and ninth reviews. However, the current amount has been slashed by approximately $300 million, bringing the new total to just under $1 billion. The convoluted nature of the IMF's statement has raised suspicions, as the explicit details regarding the future disbursement amounts were omitted, leaving room for uncertainty. One of the central concerns identified by Mokaya revolves around debt sustainability, with the IMF emphasizing the need for corrective measures to maintain fiscal stability. The failure to meet revenue targets in the fiscal year 2023-2024 has added pressure on Kenya to introduce corrective measures through the finance bill 2024 to align with future fiscal obligations. Moreover, incomplete climate targets outlined in the Resilience and Sustainability Facility agreement have further complicated the situation. Furthermore, the recent refinancing of a euro bond by the Kenyan government has alleviated some immediate financial pressures, prompting the IMF to withdraw exceptional access privileges previously extended to Kenya, indicating a less favorable evaluation of the country's fiscal performance. Amidst these challenges, public sentiment in Kenya has been critical of the government's proposed tax measures, including a controversial motor vehicle circulation tax. The public outcry reflects concerns of overtaxation and the strain it places on businesses and individuals. The delicate balancing act faced by the government between meeting IMF demands and addressing public resistance to additional taxes poses a significant challenge. Mokaya also provided insights into the breakdown of the extended credit facility, highlighting a $300 million reduction in the total program amount, with the extended credit facility seeing an increase of $155 million and the extended EFF facility facing a reduction of $143 million. The RSF, which focuses on climate change initiatives, has experienced a cut of $60 million from the expected disbursement. As the situation unfolds, monitoring the response from the IMF board and the Kenyan government will be crucial in determining the next steps and potential adjustments to the agreement. The medium-term outlook for Kenya, as stated by the IMF, remains favorable, but addressing the current challenges in revenue generation, climate targets, and public sentiment will be paramount for the successful implementation of the agreed-upon reforms.