Kenya awaits crucial IMF loan decision amid revenue worries

The National Treasury building in Nairobi. [File, Standard]

The cash-strapped Kenya Kwanza administration is anxiously awaiting the decision of the International Monetary Fund (IMF) Executive Board, which was due to convene in Washington on Wednesday to discuss a critical multi-billion-dollar loan disbursement. 

Economists have said that IMF Board’s decision will be crucial for Kenya.

The outcome will have far-reaching implications for the country’s economic trajectory and its access to international financing, they said.

The make-or-break funding is part of a 48-month Kenya programme that ends in April 2025 designed to strengthen the country’s economy.

The government’s access to these IMF funds is contingent upon meeting stringent conditionalities set by the IMF. These include implementing a national tax policy to broaden the tax base, eliminating fuel subsidies, combating corruption, and reforming State-owned enterprises.

The IMF had previously praised the now-defunct Finance Bill, 2024 as a vital initiative for expanding the domestic tax base through the rationalisation of tax expenditures. 

However, the bill’s withdrawal in June, prompted by protests led by Generation Z and a High Court ruling, created a significant setback.

This withdrawal led to a Sh346 billion revenue shortfall, further complicating Kenya’s fiscal consolidation efforts. 

The IMF postponed loan disbursement in September 2024 due to the Finance Bill’s collapse, causing Kenya to miss its June deadline for achieving budget balance and enhancing revenue collection under the four-year, $3.6 billion (Sh464.4 billion) programme.

Despite these challenges for President William Ruto’s administration, the IMF has reiterated its commitment to supporting Kenya. 

In a statement released in September, the global lender expressed its willingness to work with Kenyan authorities to explore alternative policies that could facilitate the programme’s completion.

Central Bank of Kenya (CBK) Governor Kamau Thugge recently exuded confidence in Washington that Kenya had met all IMF conditionalities except for revenue generation. Dr Thugge noted that while targets for December are still in place, the progress of the programme requires a combined 7th and 8th review by the IMF Executive Board. 

A successful review would expedite the loan disbursement process.

Under pressure to release the stalled funds, the government recently requested the IMF to conduct a corruption diagnostic assessment. 

The move, reportedly influenced by Western powers, is viewed as crucial for securing future loans from Bretton Woods institutions and bilateral partners.

IMF’s African Department Director Abebe Aemro Selassie confirmed that a team would be deployed to Nairobi to conduct the corruption audit. The team will assess governance strengths and weaknesses, focusing on public accountability. 

Utilising local expertise, they will provide prioritised recommendations to address corruption vulnerabilities.