Kenya has forfeited a Ksh.63 billion IMF disbursement as it seeks a new program to revise fiscal policies. The abandonment ended its EFF and ECF arrangements, leaving the RSF active. Experts warn of investor unease regarding the nation’s financial stability without IMF oversight. Potential new programs include capacity building to promote self-reliance. Maintaining investor confidence is crucial to avoid economic repercussions such as inflation and currency depreciation.
Kenya recently abandoned a planned disbursement of Ksh.63 billion from the IMF as it seeks to establish a new program focused on improving its fiscal policies. This action resulted in the cessation of the Extended Fund Facility (EFF) and Extended Credit Facility (ECF), with only the Resilience and Sustainability Facility (RSF) remaining active. The EFF and ECF programs aimed to provide financial assistance to help reduce inflation stemming from underlying structural issues, allowing four and five years respectively for countries to restructure.
In April 2021, an agreement was made for the IMF to provide Ksh.467.5 billion under the EFF/ECF arrangement. So far, Kenya has accessed Ksh.404 billion, meaning Ksh.63.4 billion is left unallocated due to the termination of the program. Experts believe that Kenya did not meet fiscal targets required by the IMF, thus jeopardizing access to funds during the ninth review. According to economist Churchill Ogutu, only one out of ten structural benchmarks was met by Kenya in this period.
Despite concerns, it was noted that recognizing this missed opportunity allows Kenya to maintain eligibility for future funding in subsequent programs. However, the decision to sever ties with the IMF has raised apprehensions among investors, as the terms of potential new arrangements remain uncertain. A decline in investor confidence could trigger capital flight, risking a depreciation of the Kenyan shilling and an increase in import costs, consequently aggravating inflation and the cost of living.
The forecast for Kenya indicates that maintaining an IMF program is crucial for financial discipline and accountability in government spending. The absence of such oversight may lead to economic mismanagement, potentially discouraging investment as markets view IMF backing as a stability indicator.
Ogutu highlighted that Kenya’s application for a new program, which may serve as temporary relief for investors, reflects a broader interest in maintaining economic oversight. He proposed three program paths: financed, non-financed (capacity building), and insurance-based assistance. He advocated for a capacity-building approach, emphasizing that this would enhance self-reliance without the burdens of strict financial conditions. Conversely, choosing a finance-based program might impose stricter standards that could challenge Kenya’s adaptability to the demanded measures.
Kenya’s abandonment of the Ksh.63 billion IMF disbursement highlights its need for a new program focusing on fiscal improvements. As it transitions from the EFF and ECF programs to the RSF, investors remain cautious amid potential decreases in lending confidence. The decision could impact exchange rates and inflation, emphasizing the importance of thoughtful program choices to bolster economic stability for future growth. The capacity-building approach appears favorable, promoting Kenya’s self-sufficiency without the financial strain of stringent conditions.
Original Source: www.citizen.digital
