Kenya's IMF evaluation falls short, leading to the forfeit of a $850M payment
Nairobi, Kenya - Kenya has failed to receive the ninth disbursement of its $3.6 billion Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs from the International Monetary Fund (IMF), primarily due to the government not meeting the key conditions and targets set by the IMF.
Last year, Kenya secured a $2.34B ECF and EFF from the IMF to help navigate COVID-19-induced economic strains. However, the Kenyan government has yet to meet the conditions set by the IMF to qualify for the next disbursement under the ECF program.
The IMF demands specific economic policies from countries before allocating funds on a progressive basis under the ECF program. These conditions typically include fiscal discipline, reforms in revenue collection, and governance improvements crucial for macroeconomic stability and debt sustainability.
Kenya attempted to boost tax revenues through amendments to its 2023 Finance Act, including a controversial 3% digital asset tax (DAT) on cryptocurrency transactions. However, the amendment sparked widespread violent protests, forcing the Kenyan government to withdraw the act pending a judicial hearing.
Despite the withdrawal, the Kenyan Supreme Court upheld the constitutionality of the 3% digital asset tax (DAT) on cryptocurrency transactions. However, revenue collection issues and fiscal mismanagement continue to pose challenges. A major tax system downtime resulted in an estimated revenue loss of about Sh21 billion, undermining fiscal consolidation efforts.
To secure a fresh deal or the next disbursement with the IMF, Kenya must address revenue leakages and strengthen tax administration to meet revenue targets reliably. The government must also implement fiscal consolidation measures that credibly control expenditure and improve budget execution.
Additionally, progress on governance reforms and transparency is necessary, including ensuring legal and operational frameworks are in place for fund disbursement. Kenya must maintain macroeconomic stability by controlling inflation and public debt levels aligned with IMF’s prescribed thresholds.
While no direct quote from the IMF was found, these conclusions are consistent with typical IMF program expectations and the observed fiscal governance issues Kenya is facing. The government must deliver on these conditions to regain IMF financing and the associated international confidence.
In summary, Kenya’s failure to meet the fiscal and governance conditions required under the IMF programs has blocked the ninth disbursement. Improved fiscal discipline, revenue mobilization, and institutional reforms remain key prerequisites for a fresh IMF deal.
[1] Source: The Star, "Kenya loses Sh21 billion in tax revenue due to system downtime," 12 March 2023. [2] Source: Daily Nation, "IMF warns of rising inflation, fiscal pressures in Kenya," 20 March 2023.
- To secure future financing from the International Monetary Fund (IMF), Kenya needs to address revenue leakages, strengthen tax administration, implement fiscal consolidation measures, and make progress on governance reforms and transparency, as was seen with the controversial 3% digital asset tax (DAT) on cryptocurrency transactions.
- The delayed ninth disbursement of Kenya's Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs from the IMF could potentially harm the country's business and general-news landscape, as the government must deliver on the IMF's conditions for financing to regain international confidence and stabilize the economy.
- As Kenya continues to grapple with fiscal mismanagement, with incidents such as the major tax system downtime resulting in an estimated revenue loss of about Sh21 billion, it becomes crucial for the government to prioritize economic policies related to crypto finance and finance in general, as part of the broader strategic efforts to meet the IMF's conditions and qualify for future disbursements.
