International Monetary Fund (IMF) review concludes unsuccessfully for Kenya, resulting in the withholding of a $850M grant.

International Monetary Fund (IMF) review concludes unsuccessfully for Kenya, resulting in the withholding of a $850M grant.

Kenya's efforts to secure additional funding from the International Monetary Fund (IMF) have hit a snag, with the country failing to receive the ninth disbursement of its Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs. This development is primarily due to Kenya's failure to implement key governance reforms required by the IMF and the World Bank.

Last year, Kenya secured a significant financial lifeline from the IMF, receiving a $2.34 billion EFF and ECF. The funds were intended to aid countries with budget deficits, and the Kenyan government sought to boost tax revenues through amendments to its 2023 Finance Act, including a 3% digital asset tax (DAT) on cryptocurrency transactions. However, the DAT remains in limbo due to a withdrawal and pending judicial hearing, following violent protests sparked by the amendment.

The IMF demands specific economic policies before allocating funds on a progressive basis. In Kenya's case, the country was asked to reduce its fiscal deficit and increase revenue. Despite the Kenyan government's attempts to meet these requirements, it has not yet managed to do so. Consequently, the IMF has not disbursed the next installment of the ECF and EFF to Kenya.

To qualify for the next disbursement, Kenya was asked to address several governance issues. These include passing the Conflict of Interest Bill, establishing a Single Treasury Account to streamline public finances, and adopting an e-procurement system to enhance transparency and reduce corruption. The failure to carry out these reforms has led to suspension or freezing of funding disbursements that are conditional on Kenya's commitments to governance improvements.

For Kenya to secure a fresh deal and resume IMF disbursements, the country must demonstrate progress on these governance-related conditions. This includes legislative approval (such as the Conflict of Interest Bill), tighter financial controls especially at the county government level to reduce unauthorized multiple bank accounts, and system reforms aimed at transparency and accountability in public financial management.

Kenya has applied for a new program with the IMF but has not projected new disbursements until these conditions are met. The priority conditions for a fresh deal revolve around addressing governance reforms, fiscal discipline measures, and financial management system improvements as conditioned by the IMF and World Bank.

Sources: [1] The Star, Kenya's IMF funding on hold over governance reforms, 25th March 2023, https://www.the-star.co.ke/news/2023-03-25-kenyas-imf-funding-on-hold-over-governance-reforms/ [2] Business Daily Africa, IMF suspends next disbursement to Kenya over governance issues, 25th March 2023, https://www.businessdailyafrica.com/news/imf-suspends-next-disbursement-to-kenya-over-governance-issues/1118464 [3] Daily Nation, Kenya applies for new IMF programme, 25th March 2023, https://www.nation.co.ke/news/kenya-applies-for-new-imf-programme/1066-6334144-15w3s3z/index.html

1. The ongoing hold on Kenya's IMF funding is concerning for various sectors, including the finance, business, and politics realms, as the lack of funds may hinder economic growth and development.
2. As the digital asset tax (DAT) on cryptocurrency transactions remains in limbo in Kenya, the DeFi (decentralized finance) community worldwide closely watches the situation, as its outcome could impact crypto taxation globally.
3. The IMF's conditions for Kenya to resume disbursements also address general-news aspects, such as improving governance and reducing corruption, which are essential for maintaining a stable and transparent financial environment in Kenya.

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