IMF Reaches Agreement with Kenya, Urges Fiscal Consolidation

Kenya has secured a staff-level agreement with the International Monetary Fund (IMF), paving the way for a $976 million disbursement. The IMF announced that if its Executive Board approves the second review of Kenya's Resilience and Sustainability Facility, the country will immediately access $120 million.

The IMF has urged Kenya to adjust its 2024/25 budget to include more revenue-raising measures. This call comes in light of a worsening primary fiscal balance and a tax collection shortfall, which are expected to keep domestic borrowing needs high.

Despite facing liquidity challenges since 2022, Kenya managed to sell a new $1.5 billion Eurobond in February. This move, although costly, helped to buy back another Eurobond maturing in June, easing investor concerns about a potential default and strengthening the shilling against the dollar.

The IMF stated that fiscal adjustments for 2024/25 could improve the situation. The Kenyan authorities have introduced several measures in the draft 2024/25 Budget and the 2024 Finance Bill aimed at fiscal consolidation.

The finance minister is set to present the 2024/25 (July-June) budget to parliament on Thursday, with overall spending approved at 4 trillion shillings ($31 billion), up from the initially presented 3.75 trillion shillings for the 2023/24 year, which was later adjusted to 3.85 trillion shillings.