Kenya Ends IMF Funding Program: What It Means for the Economy

Kenya has made a major financial decision by ending its funding program with the International Monetary Fund (IMF).

This decision means that Kenya will no longer receive the remaining KSh 63.4 billion from the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs. The termination of the program is expected to have both positive and negative effects on the country’s economy. Let’s break down what this decision means, why it happened, and what Kenya's next steps might be.

Why Did Kenya End the IMF Program?

Kenya and the IMF had agreed to a financial program in April 2021 to support the country’s economic stability. The IMF had committed to providing KSh 467.5 billion in total, of which KSh 404 billion had already been disbursed. The remaining KSh 63.4 billion was due in the ninth review, but Kenya decided to terminate the agreement instead.

Several reasons led to this decision:

1. Missed Economic Targets: The Kenyan government had failed to meet most of the fiscal and structural targets set by the IMF. In the sixth review (2023), Kenya only met one out of ten benchmarks. This made it uncertain whether the IMF would have approved the ninth review’s funds.

   
   

2. Desire for a New Program: Kenya wants to establish a new funding arrangement with the IMF, which could provide better financial support and guidance.

   
   

3. No Immediate Economic Shock: The government believes that Kenya does not urgently need IMF funds at the moment. Unlike in 2021 when Kenya faced economic instability, there is currently no urgent financial crisis requiring immediate IMF support.

   
   

4. Debt Management Concerns: Kenya’s rising public debt, now at KSh 11.02 trillion, has raised concerns about taking on more IMF loans, which come with strict conditions.

   
   

The Positive Side of Ending the IMF Program

1. Avoiding More Strict IMF Conditions: Kenya’s decision prevents it from having to meet additional tough financial conditions from the IMF, which could have made economic management harder.

   
   

2. Chance to Negotiate a Better Deal: By terminating the current program, Kenya now has an opportunity to negotiate a new agreement that better fits its economic goals.

   
   

3. Still Eligible for Future IMF Support: Kenya has already received 89% of the total funds under the previous program, meaning it remains in a good position to receive IMF funding in a new arrangement.

   
   

The Negative Side of Ending the IMF Program

1. Loss of Investor Confidence: When a country stops working with the IMF, investors may worry about economic stability. This could lead to foreign investors pulling their money out of Kenya, weakening the economy.

   
   

2. Depreciation of the Kenyan Shilling: If investors lose confidence, they might withdraw their funds, leading to a decline in the value of the Kenyan shilling. A weaker shilling makes imports more expensive and increases inflation.

   
   

3. Higher Borrowing Costs: Without IMF support, Kenya may have to rely more on expensive commercial loans, Eurobonds, and domestic borrowing, which could worsen the country’s debt situation.

   
   

4. Lack of Economic Oversight: The IMF provides oversight on how funds are managed, ensuring economic discipline. Without it, there is a risk of poor financial management.

   
   

What’s Next for Kenya?

Economists suggest that Kenya has three possible paths for its new IMF program:

1. A Financed Program: This would provide Kenya with new loans but would come with strict conditions. The government would need to meet tougher financial targets before receiving funds.

   
   

2. A Non-Financed (Capacity Building) Program: This would provide Kenya with technical support and training without new loans. This option could help Kenya improve financial management and reduce reliance on external funding.

   
   

3. An Insurance-Based Program: This would act as a financial safety net in case of future economic shocks. Kenya would only receive funds if a crisis occurs.

   
   

How Will Kenya Manage Its Debt Without IMF Support?

Since Kenya will not receive the KSh 63.4 billion from the IMF, the government will need to find other ways to finance its budget. This may include:

• External Commercial Loans: Borrowing from international markets, such as issuing Eurobonds or seeking syndicated loans.

  
  

• Domestic Borrowing: Raising funds from local banks and investors.

• Increasing Revenue Collection: The government may increase taxes or improve efficiency in tax collection to raise more money.

Conclusion

Kenya’s decision to terminate the IMF funding program marks a major shift in the country’s financial strategy. While it prevents Kenya from facing stricter IMF conditions, it also creates new challenges, including the risk of investor uncertainty and expensive borrowing.

The government now has the task of securing a new financial arrangement that balances economic growth with responsible debt management.

Kenya’s next steps will determine how well it navigates this transition. If the government successfully negotiates a new IMF program or strengthens its domestic financial policies, the economy may remain stable. However, if investor confidence declines and borrowing costs rise, the country could face economic difficulties.