IMF and Kenya establish a staff-level agreement and recommend fiscal consolidation

The International Monetary Fund and Kenya struck a staff level agreement on Tuesday, according to the organization, opening the door for the payment of roughly $976 million.

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

The lender also recommended that the East African country amend its 2024–2025 budget to include more measures aimed at increasing income, given that the country’s domestic borrowing needs were anticipated to remain high due to a decline in the primary fiscal balance during the previous fiscal year and a shortfall in tax collection.

Kenya has struggled with cash since 2022, but in February it was able to partially repurchase another Eurobond that is expiring in June by selling a new $1.5 billion Eurobond from international markets, albeit at a hefty price.

The issuance boosted the value of the shilling relative to the dollar, allayed investor fears about a possible default, and restored trust in the economy among outside investors.

The fund suggested that making changes to the budget for 2024–2025 could help.

“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 stated.

The 2024–25 (July–June) budget is scheduled to be presented to parliament by the finance minister on Thursday.

Parliament approved 4 trillion shillings ($31 billion) for the year’s total spending, which is more than the 3.75 trillion shillings the minister had given in June of last year for the 2023–2024 fiscal year. Later on, the budget was changed to 3.85 trillion shillings.

The Finance Bill 2024, a distinct law containing revenue-raising recommendations, will be introduced concurrently with the 2024–2025 budget. Some critics claim that some of these measures will severely impair the financial services, transportation, manufacturing, and retail industries.

The current $3.6 billion IMF agreement with Kenya was reached in April 2021. This evaluation is the seventh that the program has conducted.

Kenya will utilize a portion of a $1.2 billion World Bank budget support loan to pay around $500 million toward a maturing Eurobond this month, according to the central bank governor’s statement last week.

$1 equals 129.0000 shillings in Kenya.