Kenya has abandoned a Ksh.63 billion IMF disbursement to pursue new fiscal policies. This decision concludes the EFF and ECF arrangements, leaving the RSF program active. Experts stress the importance of maintaining investor confidence and suggest options for future engagement with the IMF, focusing on capacity-building to enhance economic self-reliance while warning of potential challenges ahead.
Recently, Kenya opted to abandon a Ksh.63 billion disbursement from the International Monetary Fund (IMF) as it seeks to advance new financial strategies aimed at rebuilding its fiscal policies. Consequently, both the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements have come to an end, leaving only the active Resilience and Sustainability Facility (RSF) program, which prioritizes climate objectives.
The EFF and ECF programs were initiated to assist countries struggling with inflation due to structural challenges. The EFF allows for up to four years of restructuring, while the ECF can extend to five years. The IMF agreement with Kenya, signed in April 2021, initially provided for Ksh.467.5 billion under the EFF/ECF framework; Kenya has accessed Ksh.404 billion, resulting in the relinquishment of Ksh.63.4 billion post-termination.
Experts indicate that the Kenyan government faces mounting pressure after failing to meet the IMF’s fiscal targets, suggesting that without adherence to these benchmarks, there was little chance of securing funds during the ninth review. Churchill Ogutu, an economist, noted, “Kenya has not been meeting fiscal targets since 2023 during the sixth review…” Despite this, Kenya’s substantial access of 89 percent of the approved IMF funds allows it to remain eligible for future financial assistance programs.
The decision to distance itself from the IMF may create unease among investors, as the terms of the proposed new program remain ambiguous. A loss of investor confidence could trigger capital flight, further devaluing the Kenyan shilling, which would lead to expensive imports and heightened inflation, ultimately raising the cost of living in the country.
While the absence of an IMF program could result in reduced financial discipline and economic oversight, Ogutu noted that Kenya’s request for a new program could temporarily alleviate investor anxieties. By maintaining the prospect of an IMF arrangement, Kenya can foster investor trust as it navigates its economic challenges.
For its new program, Ogutu suggested three possible approaches: financed, non-financed (capacity-building), and insurance-based options. He expressed preference for the capacity-building approach, which focuses on practical training and peer learning to enhance self-sufficiency. However, he cautioned that opting for a finance-based program may introduce tougher economic conditions, necessitating rigorous adherence to stipulated IMF conditions.
In summary, Kenya’s opt-out from a Ksh.63 billion IMF disbursement marks a pivotal moment as the nation aims to redefine its fiscal strategies. While potential new programs are being proposed, investor confidence remains a concern amidst economic uncertainties. Emphasizing capacity-building initiatives could provide a foundation for long-term financial stability, yet vigilance is essential to navigate potential challenges arising from this transition.
Original Source: www.citizen.digital
