Kenya has chosen to forgo Ksh.63 billion from the IMF to establish a new program aimed at enhancing fiscal policies. This decision ends the EFF and ECF arrangements, leaving the RSF active. Experts believe this move could complicate investor confidence and economic stability, while three potential approaches—financed, non-financed, and insurance-based—are being considered for the new program. The capacity-building approach is suggested as the most advantageous for achieving self-reliance.
Kenya has recently decided to abandon a Ksh.63 billion disbursement from the International Monetary Fund (IMF) as it seeks to develop a new financial program aimed at enhancing its fiscal policies. This decision will result in the cessation of the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) arrangements, leaving the Resilience and Sustainability Facility (RSF) as the only active program. The EFF and ECF were initially designed to provide monetary support to nations grappling with inflation due to structural difficulties, with durations of four and five years respectively, while the RSF focuses on climate initiatives.
In April 2021, the IMF had agreed to disburse Ksh.467.5 billion to Kenya under the EFF/ECF framework; however, the country has only accessed Ksh.404 billion thus far, leaving Ksh.63.4 billion unutilized following the program’s termination. Experts caution that the Kenyan government’s failure to meet fiscal targets set by the IMF could have hindered its access to funds during the ninth review. According to Churchill Ogutu, an economist, “Kenya has not been meeting fiscal targets since 2023 during the sixth review and only met one out of ten structural benchmarks.”
While Kenya has successfully obtained 89 percent of the total amount available from the IMF, the termination of these arrangements raises concerns for investors. Market apprehension often arises when a country like Kenya severs ties with the IMF; consequently, the specific terms of a proposed new program remain uncertain. Additionally, a decrease in investor confidence could lead to capital flight, weakening the Kenyan shilling and resulting in higher import costs and inflation.
IMF programs serve to ensure accountability and promote responsible spending, which could mitigate financial waste. Without IMF oversight, Kenya may struggle with economic stability, potentially driving investors away who seek the security of IMF-backed programs. In light of these uncertainties, Ogutu expresses that Kenya’s quest for a new arrangement might offer temporary relief. “From an investor perspective, a country that has an IMF program as an anchor assists in providing economic oversight,” he states.
Looking forward, Ogutu outlines three potential approaches for the new program: financed, non-financed (capacity building), and insurance-based. He emphasizes that the capacity-building model, which includes training and peer-learning, could lead to greater self-reliance for Kenya. If the country opts for a finance-based program, he warns that it will face stricter conditions for compliance. He concludes that technical assistance from the IMF would be preferable to eliminate existing delays in meeting program requirements.
In conclusion, by abandoning the Ksh.63 billion IMF disbursement, Kenya seeks to initiate a new financial framework that prioritizes fiscal policy improvements. Although this decision raises initial concerns regarding investor confidence and economic stability, the exploration of various program models, particularly in capacity building, presents an opportunity for long-term self-reliance. Ultimately, the effectiveness of the new arrangement will hinge upon Kenya’s ability to adhere to fiscal targets and restore trust from both investors and international partners.
Original Source: www.citizen.digital
