- What are the objectives of the IMF-supported economic program?
- What are the IMF’s comments on recent protests against the Finance Bill 2024?
- How will the withdrawal of the Finance Bill affect Kenya's economic recovery and IMF support? Can the IMF adjust its existing program for Kenya given the current economic and social unrest?
- Why does Kenya need to strengthen its tax capacity? What is your policy advice?
- How is the program advancing the governance and anti-corruption agenda?
What are the objectives of the IMF-supported economic program?
Kenya's reform program supported by the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) arrangements was approved by the IMF Executive Board on April 2, 2021, for 38 months and extended by 10 months on July 17, 2023. In view of exceptional balance of payments pressures, a further augmentation of about $941 million was approved on January 17, 2024, bringing total IMF funding under the program to about $3.9 billion. This helped alleviate market concerns which allowed Kenya to access the bond market and partially roll over the maturing Eurobond.
Kenya faces multiple challenges, including a cost-of-living crisis, climate change impacts, high poverty rates and inequality and elevated debt vulnerability. The IMF-supported program aims to help Kenya reduce its debt vulnerabilities and strengthen its ability to align spending with revenues. These objectives reflect the priorities and concerns of the Kenyan authorities, and stakeholders such as civil society, the private sector, and youth groups. The objectives would be achieved through a multi-year fiscal consolidation strategy, involving raising revenues equitably and prioritizing spending while protecting social and development programs.
The IMF-supported program also supports the government's broader reform and governance agenda, addressing weaknesses in state-owned enterprises, strengthening anti-corruption efforts, bolstering the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework, improving central bank operations, and advancing policies for sustained and inclusive growth.
What are the IMF’s comments on recent protests against the Finance Bill 2024?
We are deeply concerned about the tragic events in Kenya in recent weeks and saddened by the loss of lives and the many injuries. Our thoughts are with all the people affected by the turmoil in the country.
Our main goal in supporting Kenya is to help it overcome the difficult economic challenges it faces, and improve its economic prospects and the well-being of its people.
We are committed to working together with Kenya to chart a course towards robust, sustainable, and inclusive growth.
How will the withdrawal of the Finance Bill affect Kenya's economic recovery and IMF support? Can the IMF adjust its existing program for Kenya given the current economic and social unrest?
The IMF remains committed to supporting Kenya's efforts to achieve inclusive and sustainable growth and to improve the living standards of its citizens.
At every program review, we assess developments and make adjustments considering the evolving circumstances.
Any potential modifications to the IMF program will be based on thorough analysis and constructive dialogue with the Kenyan authorities on their proposed policy package, with the aim of addressing the country's economic challenges effectively.
It is also important that these policies go through a process of broad consultation so they can gain public support.
We are confident that we will be able to find a balanced path forward.
Why does Kenya need to strengthen its tax capacity? What is your policy advice?
Kenya's tax-to-GDP ratio has been declining for almost a decade since its peak of 15.4 percent in FY2014/15 and remains lower than that of its regional peers. Over the same period, the public debt service to revenue ratio—an indicator of Kenya's capacity to repay its debt obligations—has increased markedly from about 35 to about 60 percent of revenues. This trend reduced the resources available for development spending—including on education, health, and priority social programs.
Strengthening tax capacity is essential for Kenya's development, not only to finance critical public spending but also to enable the state to fulfill its role in facilitating growth and improving public service delivery. With a significant share of revenues going toward debt service, Kenya needs to mobilize more revenues to meet the country's needs.
Kenya's Medium-Term Revenue Strategy aims to widen the tax base and improve tax equity. This involves comprehensive tax policy and administrative measures across all tax categories.
It is also important to ensure that taxpayers' resources are spent efficiently and effectively and in priority areas. In that respect, Kenya also needs to enhance transparency, accountability, and anti-corruption efforts.
How is the program advancing the governance and anti-corruption agenda?
Promoting good governance remains an essential part of the IMF's engagement with the Kenyan authorities. The authorities' program contains specific commitments to protect public resources, enhance transparency and accountability to reduce corruption risks, and better manage State Owned Enterprises.
Key elements include:
- In November 2023, the authorities published a new ownership policy for commercial state corporations (SCs). This policy introduces a revamped governance structure and legal framework that aligns with international norms, with the goal of enhancing performance and transparency. This includes the strengthening of the Boards of Directors' authority while protecting them from political interference and the publication of beneficial ownership information. Enhancing efforts to follow up on audit findings of the Auditor-General by promoting greater coordination among state bodies, including law enforcement agencies, enhancing monitoring capabilities, and improving public reporting.
- Introduction of a conflict-of-interest bill that would require high-level officials to file information regarding disclosure of interests and assets beneficially owned and declare assets.
- Publication of beneficial ownership information for companies and additional measures, including through capacity building, to ensure public procuring entities continue to comply with the publication requirements.
- Addressing the AML/CFT deficiencies identified in the Financial Action Task Force action plan that aims to strengthen Kenya's AML/CFT regime. A multi-stakeholder group led by the Financial Reporting Centre is working to analyze and allocate specific requirements under each action item to complete the authorities' action plan.
- Following the establishment of a Pending Bills Verification Committee in late June 2023, a strategy on verification and clearance of pending bills/domestic arrears outstanding at end-June 2022 was approved and published in June 2024. The strategy aims to address the weaknesses in the Public Financial Management (PFM) systems that led to the accumulation of pending bills and clear the verified stock of pending bills.
- To ringfence the resources budgeted for price stabilization purposes, National Treasury and Ministry of Energy published an assessment of the governance structure of the Petroleum Development Fund in August 2024, including recommended actions to strengthen its management, bolstering its transparency and fiscal accountability.