Kenya gets Sh162bn IMF loan top-up on tax reforms
Tuesday May 23 2023
Kenya will receive an additional Sh162.5 billion under the 38-month programme that it has with the International Monetary Fund (IMF) after President William Ruto showed a firm commitment to implement the stringent tax policies agreed with the Washington-based global lender.
This means that Nairobi will receive Sh484.9 billion ($3.52 billion) in loans after it requested two additional credit facilities, bolstering its efforts at replenishing the foreign exchange reserves.
Read: Forex buffer hits above 4 months cover on IMF loan
By the time of approval of the ongoing Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements in April 2021, the programme was set at Sh322.4 billion ($2.34 billion).
This is an increase of Sh162.5 billion, with President Ruto’s administration receiving more cash from the IMF to combat drought and climate-related challenges.
This even as the IMF, in a staff report, lauded Dr Ruto’s new tax proposals, noting that they will help the government to reduce its budget deficit.
In a statement, the IMF noted that the new revenue-raising measures were “significant”.
“The authorities have responded promptly to the challenges. On the fiscal side, government spending execution has been prudent this fiscal year, consistent with available resources,” said Haimanot Teferra who led the IMF mission to Kenya.
“Moreover, the draft financial year 2023/24 budget submitted to Parliament proposes to further reduce the deficit from 5.7 to 4.1 percent of GDP (gross domestic product), with significant new revenue measures consistent with the objective of reducing the ratio of debt to GDP.”
Some of the proposals that the IMF has recommended before, and which the Treasury has included in the Finance Bill 2023, include increasing the value-added tax (VAT) to 16 percent from the current eight percent.
Kenya has also proposed to increase excise duty on beauty products such as fake nails and wigs, and betting.
Pay as you earn on persons earning over half a million in a month has also been increased to 35 percent.
The augmentation of the EFF/ECF programme, or the additional funds for addressing shocks such as drought which were approved in the fourth review, amounted to Sh74.4 billion ($544.3 million).
In the fifth review that was recently completed, Kenya has also requested around Sh86.9 billion ($636 million) under a new 20-month Resilience and Sustainability Facility (RSF) arrangement.
The 38-month programme is aimed at helping Kenya reduce its debt vulnerabilities by increasing revenues and cutting spending, including disbursements to state corporations such as Kenya Airways and Kenya Power.
Subject to approval by the IMF Executive Board, Kenya will receive another Sh56.5 billion ($ 410 million) from the IMF in July.
On Tuesday, the IMF said its staff and the Kenyan authorities had agreed on economic policies and reforms to conclude the fifth review of Kenya’s EFF and ECF arrangements.
The disbursement of the funds, which is subject to approval by the IMF Executive Board, will help replenish Kenya’s dwindling foreign exchange reserves.
“The agreement is subject to IMF management approval and consideration by the executive board, which are expected in July. Upon completion of the fifth review by the IMF Executive Board, Kenya would have immediate access to SDR3,06.7 million (about $410 million), including from the augmentation of access under the ECF/EFF,” said Ms Teferra.
Kenya has also entered into a new 20-month programme with the IMF to finance mostly climate-change-related projects.
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This is in addition to augmentation access of about $544.3 million that the country is supposed to tap into to help deal with such shocks as drought.
This disbursement, if approved, would bring total IMF financial support disbursed under the EFF and ECF arrangements to Sh275.5 billion ($ 2,017 million).
With the EFF/ECF augmentations and the RSF support, the total IMF commitment under these arrangements would be Sh480.8 billion ($3.52 billion).
With the new Resilience and Sustainability Facility (RSF) arrangement, which will run concurrently with the EFF/ECF arrangements, Kenya has requested the extension of the current facility by another 10 months until April 2025.
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