Kenya has opted to abandon its International Monetary Fund (IMF) programmes, which were criticized for their stringent conditions that sparked the Gen Z revolt last year. This uprising led, among other things, to the scrapping of the Finance Bill 2024 by President William Ruto.
A statement released by the IMF at the conclusion of a staff team visit to Nairobi, led by Ms. Haimanot Teferra, revealed that both the IMF and Kenya had agreed not to proceed with the ninth review under the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes. Instead, Kenya has formally requested a new programme with the IMF and expressed its willingness to engage with the organization moving forward.
“The mission team engaged with the Kenyan authorities on recent developments and the macroeconomic outlook. The Kenyan authorities and IMF staff have reached an understanding that the ninth review under the current Extended Fund Facility and Extended Credit Facility programmes will not proceed. The IMF has received a formal request for a new programme from the Kenyan authorities and will engage with them going forward,” Ms. Teferra stated.
She also expressed gratitude to the Kenyan authorities for their engagement and hospitality during the mission, which included meetings with President Ruto, Cabinet Secretary Mbadi Ng’ongo, Central Bank of Kenya Governor Thugge, and other key stakeholders.
The EFF and ECF programmes, approved in April 2021, aimed to support Kenya’s efforts to address debt vulnerabilities while ensuring resources for essential social and developmental needs. The programmes also sought to build resilience to shocks, improve governance and transparency, and support broader economic reforms to achieve Kenya’s medium-term potential.
These programmes included various targets that Kenya had to meet at each review to access approximately US$3.61 billion in budgetary support. Targets included enhancing tax compliance, improving public expenditure efficiency, reforming the wage bill, restructuring state-owned enterprises, reducing unproductive spending, and better targeting subsidies and transfers while safeguarding social and development spending.
Following the approval of the seventh and eighth reviews by the IMF Executive Board on October 30 last year, Kenya’s total access increased to approximately US$3.12 billion, leaving a balance of US$0.49 billion that was to be released after the ninth review.
This was to be confirmed after the recent visit, which took place between March 6 and 14. However, it remains unclear whether Kenya will still be able to access the final tranche of IMF funding without a formal review to determine if it is on track with the agreed reforms.
After the combined seventh and eighth reviews, which were delayed following the Gen Z protests that derailed tax measures and other reforms in the Finance Bill 2024, Kenya gained access to approximately US$485.8 million under the EFF/ECF arrangements. This is likely to be the last disbursement under the programme, which is set to end in April.
In completing the reviews, the IMF Executive Board acknowledged that resolving the exceptional external financing pressures earlier this year had revived market confidence, stabilizing the shilling and enabling a faster build-up of reserves. However, it also noted that fiscal consolidation efforts faced challenges following a significant tax revenue shortfall in FY2023/24 and the withdrawal of the 2024 Finance Bill after widespread public protests. Despite this, the EFF/ECF programme succeeded in reducing inflation, strengthening external buffers, and stabilizing the exchange rate.
During the reviews, the IMF Board approved waivers for non-observance of the end-December 2023 tax revenue and end-June 2024 primary budget balance and tax revenue targets, based on corrective actions taken through the passage of the Supplementary FY2024/25 Budget. This, along with medium-term fiscal consolidation, was expected to help reduce debt vulnerabilities, a core objective of the programme.
While the IMF remained committed to the full implementation of the programme, its emphasis on tax reforms, including broadening the tax net, led the government to introduce several new taxes and increase others, which sparked discontent. The removal of food and fuel subsidies in 2023 also contributed to last year’s protests, forcing the National Treasury to reconsider its approach.
National Treasury Cabinet Secretary John Mbadi has stated that, while the Finance Bill is a constitutional requirement in the budgeting process, it is not guaranteed that new taxes must be introduced every year.
Meanwhile, Kenya Revenue Authority Chairman Ndiritu Muriithi recently announced that the tax authority would no longer focus on raids targeting pay slips but would instead seek to broaden the tax net.
