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Kenya and the International Monetary Fund (IMF) are set to weigh options available to them as its existing multi-year programme nears its April 2025 expiry date.
The country programme with the fund under the extended credit facility and extended fund facility (ECF/EFF) cannot be pushed beyond April next year as Kenya will have exhausted its allowed access to IMF funds.
Kenya’s access limit to IMF funds is set at six times its quota or Sh559.4 billion ($4.331 billion), a cap expected to be reached when the fund makes its last and ninth disbursement from the ECF/EFF programme in six months.
IMF’s Mission Chief to Kenya Haimanot Teferra says Kenya and the fund will likely work out a standby arrangement but any future programmes with the fund will require that Kenya handles its rising balance of payment needs beforehand.
Balance of payment needs refer to outsized external payments that present liquidity challenges to governments such as Kenya’s June 2024 Eurobond maturity.
“The ECF/EFF programmes cannot be extended because the programmes were expanded to the maximum feasibility, under the current rules, we cannot extend it any further,” she said.
“Kenyan authorities have indicated that they would want to continue engaging the fund. In what form? The decision will have to come later as we assess the situation. Whether we go with new funding or a precautionary arrangement, the country cannot have a present balance of payment needs and would have to mobilise resources from others to settle the need. The likelihood of a precautionary facility would be very limited without that.”
Kenya has had access to various forms of financing from the IMF since 1975 including standby arrangements (SBAs) and standby credit facilities (SCFs).
The last such arrangement was an SBA and SCF facility totalling Sh193.7 billion ($1.5 billion) at current exchange rates and which expired in March 2018.
Kenya did not tap from either facility during its term, but the arrangements were seen as handy in navigating unforeseen risks including external shocks.
Former Central Bank of Kenya (CBK) governor Partrick Njoroge likened the standby deals to having an insurance policy against a fire, assuring comfort and peace of mind whether it occurs or not.
The SBA is usually a non-concessionary lending arrangement with a market-based interest rate lower than private markets while the SCF also features lower interest costs than the market and can be tapped by low-income countries facing balance of payment needs.
The exhaustion of IMF funds means Kenya would have lower access to concessional funding from multilateral lenders signalling pressure on the exchequer to seek alternatives including tapping the international capital markets.
Kenya and the IMF have been engaged on the ECF/EFF programmes since April of 2021 with the facilities helping to address balance of payments resulting from structural problems.
Kenya will, however, continue accessing funding from the World Bank with the development-based lender having a three-year arrangement with the country under its development policy operations (DPF).
The World Bank disbursed Sh155 billion ($1.2 billion) from the DPF in June this year, representing the first of three expected tranches up to 2026.
Kenya is currently seeking a Sh193.7 billion commercial loan with the backing of the United Arab Emirates (UAE) to meet its external financing requirements for the 2024/25 financial year.
The National Treasury has expressed interest in continued access to cheap funding from the IMF even as it courts alternative financiers.
“I don’t think we can sever our links with the IMF if they are still giving us concessional loans to support our budget, we will still work with them,” Treasury Cabinet Secretary John Mbadi said last month.
“The only thing is we must be realistic. I completely believe that some of the targets we had set with the IMF were unrealistic. You can’t increase tax collection by two percentage points in a country as that may cause disturbance.”
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