IMF Reaches Staff Level Agreement with Kenya, Urges Fiscal Consolidation

NAIROBI, Reuters: Kenya has reached a staff level agreement with the International Monetary Fund on Tuesday, the organisation said, paving the way for the disbursement of about $976 million.

The fund said in a statement that if its Executive Board approves a second review of Kenya’s Resilience and Sustainability Facility, it would have immediate access to $120 million.

The lender also urged the East African nation to adjust its 2024/25 budget to include more revenue raising measures, 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 fund said 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.

Parliament approved overall spending for the year at 4 trillion shillings ($31 billion), up 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.