Kenya fails IMF review, forfeits $850M disbursement

Kenya has passed up on the ninth disbursement of the $3.6B extended fund facility (EFF) and extended credit facility (ECF) programs it has with the International Monetary Fund worth $850M. 

The country is now looking to secure a fresh deal with the international lender of last resort. 

The details 

• Kenya failed the IMF’s review, which prequalifies it to receive the next tranche of funding. 
• Citing unnamed sources close to the decision-making process on both sides, Bloomberg reported that the country did not meet its tax revenue requirements as stipulated by the IMF. 
• As a result of the deficit, its spending exceeded its revenue at a rate higher than the IMF’s conditions for the next disbursement. 
• In addition, Kenya also failed to clear decades-old government arrears and restructure government institutions that had been draining its purse. 
• In a statement earlier in the week, the IMF said it agreed with Kenyan authorities to cancel the scheduled disbursement, adding that it has now received a request from the country for a fresh program. 

Key quotes 

• The IMF said: 

“The Kenyan authorities and IMF staff have reached an understanding that the ninth review under the current extended fund facility and extended credit facility programs will not proceed. The IMF has received a formal request for a new program from the Kenyan authorities and will engage with them going forward.” 

Key context 

• The IMF’s ECF program is designed to cater to countries that spend considerably more money than the revenue they generate and need to borrow to finance their budget. 
• However, before the IMF allocates the funds on a progressive basis, it demands that benefiting countries put specific economic policies in place. 

Before now

• Kenya had secured approval for a $2.34B ECF and EFF from the IMF in 2021 to help it navigate COVID-19-induced economic strains. 
• However, to qualify for the next disbursement under the program, the IMF asked Kenya to slash its fiscal deficit and ramp up revenue-raising measures, including raising taxes, requirements the country ultimately failed to meet. 
• Kenya attempted to boost tax revenues through amendments to its 2023 Finance Act, including a controversial 3% digital asset tax (DAT) on cryptocurrency transactions.
• The amendment sparked widespread violent protests, forcing the Kenyan government to withdraw the act pending a judicial hearing. 
• Last year, the Kenyan Supreme Court upheld the amendments as constitutional and okayed the implementation of the law.