The International Monetary Fund (IMF) will meet next week on Monday to review Kenya’s application for extending the programme, accessing additional funds and negotiating a new funding line, even as the country litigates the Fund’s sponsored tax laws.
The meeting is also expected to review requests to waive application of some conditionalities and a clause to consult the fund on making monetary policy decisions.
Kenya which is in dire need of IMF funds to plug budget holes due to inability to afford commercial loans is keen on accessing an extra $1.1 billion (Kes152 billion) and expand the Fund programme by another two years after reaching a staff level agreement with the Fund.
The IMF staff agreed to give Kenya additional support under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements as well as open a new line of credit under the Resilience and Sustainability Facility (RSF) arrangement that will run for a 20 month period.
The additional resources bring total programme loans to $3.52 billion, funds which will ease Kenya’s debt payments and ease pressure on the shilling by providing dollar reserves.
Now it is now up to the Board to give a nod next week if they agree on credibility of Kenya’s reform agenda.
“Fifth Reviews Under the Extended Fund Facility and Extended Credit Facility Arrangements and Request for a 20-Month Arrangement Under the Resilience and Sustainability Facility, Requests for Extension, Rephasing, and Augmentation of Access, Modification of a Performance Criterion, Waiver of Applicability for Performance Criteria and Waiver of Nonobservance for a Performance Criterion, and Monetary Policy Consultation Clause,” IMF said.
Kenya’s agenda will land at the board as Kenya litigates the crucial Finance Law which the Fund needs Kenya to implement in order to increase revenues to contain debt and expenditure gaps.
The High Court is today (Monday) expected to hear a case filed by Senator Okiyah Omtata challenging the implementation of the Finance Act 2023.
On Wednesday last week, Justice Hedwig Ong’undi certified the matter as urgent directing the State officials to respond to the lawsuit within seven days.
Kenya is also yet to deliver on anti-money laundering targets after refusal by lawyers to be appointed as reporting agents in the fight against dirty cash even as a September review by FATF (Financial Action Task Force) standards that risks returning the country to the grey looms.
Instead, the cabinet has approved the new Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill 2023, targeting financial institutions and designated non-financial businesses that will now be required to conduct thorough verification of their customers.
Save Kenya from default
The Bill also seeks to enhance customer due diligence, strengthen reporting obligations, expand scope and coverage as well as increasing penalties and deter-rents. These measures will help prevent the risk of anonymous transactions and ensure transparency in financial dealings.
Despite the shortcomings the IMF has been keen to save Kenya from default even as the country faces one of its largest debt repayment in the Eurobond that matures next year.
Kenya secured the commitment of the multilateral lender for additional resources to deal with dollar shortages amid rising debt payments during the Fund managing director Kristalina Georgieva’s visit.
Ms Georgieva said “Kenya is a case of innocent bystander. It has been hit by external shocks” and that “the government can raise money from sources including syndicated loans and the IMF” to avoid any defaults.
While her comments helped cool investor fears, bringing the rate on Kenya’s ten year Eurobond maturing in June next year down by 5.5 percentage points in just two weeks, the Borad decision will ultimately shape the country’s financial position with very little confidence coming from the country’s authorities.
It is not clear how Kenya wants to settle the debt with Treasury indicating it received 300 proposals for settling the debt but has not disclosed the options while President William Ruto said Kenya will redeem half of the bond upfront without providing details.
The Treasury now says it is in the second phase of selecting the lead managers who will oversee the next Eurobond issue and is preparing request for proposal (RFP) documents and would not want to speculate on the advisory it will get.