Kenya has officially terminated the ninth review of its International Monetary Fund (IMF) program, signaling a significant shift in its fiscal strategy. This decision reflects the government’s intention to pursue a new financial arrangement aimed at restructuring its economic policies.
The move brings an end to the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs, leaving the Resilience and Sustainability Facility (RSF) as the sole active IMF program in Kenya.
Why Kenya Dropped the IMF Program
The EFF and ECF programs were introduced to provide financial support to countries dealing with structural economic challenges, giving them up to five years to stabilize their economies.
Under the agreement signed in April 2021, Kenya was set to receive Ksh.467.5 billion from the IMF. To date, Ksh.404 billion has been disbursed, with Ksh.63.4 billion left untapped following the program’s termination.
Experts argue that Kenya’s inability to meet fiscal targets set by the IMF since 2023 played a role in the decision. Economist Churchill Ogutu noted that Kenya met only one out of ten structural benchmarks during the sixth review, raising doubts about its eligibility for further funds under the ninth review.
The Upside of the Decision
Despite forfeiting the remaining funds, Kenya still retains eligibility for future financial assistance through a successor program. The government’s decision to pivot offers an opportunity to negotiate a new arrangement that better aligns with its fiscal goals.
The Downsides of Cutting IMF Ties
For global investors, severing ties with the IMF can trigger concerns about a country’s financial stability. The lack of clarity regarding Kenya’s next steps has already caused unease in financial markets.
A weakened investor outlook could lead to capital flight, a sharp depreciation of the Kenyan shilling, and increased costs for imports. Combined with rising inflation, this would heighten the already significant cost of living for Kenyan citizens.
Furthermore, IMF programs serve as a financial accountability mechanism, ensuring disciplined economic management. Without this oversight, Kenya risks fiscal mismanagement and reduced investor confidence.
Kenya’s Next Steps
Kenya is now exploring alternative IMF programs, including:
- Financed Programs: Providing loans but with stricter conditions.
- Non-Financed Programs: Offering capacity-building and technical assistance.
- Insurance-Based Programs: Serving as financial safety nets during economic shocks.
Ogutu emphasized that a capacity-building program could help Kenya strengthen its fiscal policies without the pressure of meeting stringent financial conditions.
Conclusion
While the termination of the IMF program presents risks, it also offers Kenya a chance to redefine its economic trajectory. By leveraging capacity-building initiatives, the country can address structural issues and rebuild confidence in its fiscal strategy.
