The IMF and Kenyan authorities this week reached a staff-level agreement on policies and reforms needed to complete the seventh review of Kenya’s economic programme under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF), as well as the second review under the Resilience and Sustainability Facility (RSF). 

The seventh review of Kenya’s $4.43 billion programme with the IMF took about six weeks, longer than usual. This was partly due to the economic impact of recent floods and complex tax measures. Reaching a consensus on these measures proved challenging, as Kenya has struggled with meeting revenue targets in the past.

Kenya’s economy grew by 5.6% in 2023, helped by a strong recovery in agriculture and services after recent rains. However, recent floods have strained resources, highlighting the need for better disaster management and support.

Kenya’s total access to IMF resources will be adjusted to $976 million, including $156 million in zero-interest loans, aligning with Kenya’s current needs. Kenya reduced its planned borrowing from the IMF by 7.2% to $3.6 billion after partially repaying a Eurobond. This reduction aligns with Kenya’s improved financial position following the February refinancing of the Eurobond due in June. If approved, Kenya’s total remaining access will be adjusted to 135.55% of its IMF quota, which includes a recalibration towards concessional financing under the ECF. Concurrently, the World Bank reduced its budget support to Kenya by 20% to $1.2 billion. 

To correct the fiscal course, Kenya has introduced measures in the 2024/25 Budget and the Finance Bill to broaden the tax base, enhance compliance, and improve expenditure efficiency. The Central Bank of Kenya intends to maintain a tight monetary policy to control inflation and improve the functionality of foreign exchange and money markets. Progress continues on climate-related reforms and strengthening the anti-money laundering and countering the financing of terrorism (AML/CFT) framework.

Adjustments to the budget aim to address fiscal shortfalls from the previous year. Kenya’s medium-term outlook remains favourable with ongoing reforms to boost exports, fiscal revenues, and resilience to external shocks. Continued improvements in government operations and climate resilience are emphasised to support macroeconomic stability. To date, Kenya has accessed $2.6 billion from the IMF programme following six reviews.

Kenya’s future looks promising if it continues to implement reforms. These reforms aim to increase exports, raise government revenues, and build financial buffers to protect against economic shocks.