Kenya has opted out of a Ksh.63 billion IMF disbursement, concluding the EFF and ECF programs in favor of the RSF. Despite missed fiscal targets leading to this decision, experts suggest the country may explore new arrangements, including capacity-building options. Investor confidence remains a concern after this move, raising potential risks of economic destabilization.
Following Kenya’s decision to forgo a Ksh.63 billion disbursement from the International Monetary Fund (IMF), the Kenyan government has sought new arrangements to enhance its fiscal policies. As a result of this request, the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs will come to an end, with only the Resilience and Sustainability Facility (RSF) remaining active. The EFF and ECF were designed to aid countries grappling with inflation due to structural issues, allowing for time to stabilize their economies.
The EFF program offered a four-year period for countries to restructure their economies, while the ECF extended this period up to five years. Conversely, the RSF primarily supports initiatives addressing climate challenges. In April 2021, Kenya had initially entered an agreement with the IMF for a total disbursement of Ksh.467.5 billion under the EFF/ECF arrangement, of which Ksh.404 billion has been accessed, leaving a significant Ksh.63.4 billion unutilized following the program’s cessation.
Experts have indicated that the Kenyan government has struggled to meet fiscal targets, contributing to the decision to forgo this disbursement. Economist Churchill Ogutu noted, “Kenya has not been meeting fiscal targets since 2023 during the sixth review and only met one out of ten structural benchmarks.” Notably, Kenya has successfully accessed 89 percent of the total IMF funds, suggesting potential qualifications for further support in its upcoming programs despite the missed review.
However, the withdrawal from the IMF raises concerns for investors, who often view such actions as indicative of financial instability. Additionally, while Kenya has requested a new understanding with the IMF, the specifics of these terms remain unresolved. The risk of declining investor confidence could lead to capital flight and depreciation of the Kenyan shilling, which would subsequently increase import costs and elevate inflation, exacerbating the cost of living.
The absence of an IMF program may hinder economic oversight, resulting in fiscal irresponsibility and greater financial negligence. Ogutu suggested that the government’s request for a new arrangement could offer temporary reprieve for investors, stating that, “From an investor perspective, a country that has an IMF program as an anchor assists in providing economic oversight.”
Looking ahead, Ogutu identified three potential frameworks for Kenya in this new arrangement: financed options, non-financed (capacity-building) strategies, and insurance-based initiatives. He advocates for a capacity-building approach that focuses on practical training and peer learning, which would foster self-reliance. Conversely, he cautioned that a finance-based program could impose stricter conditions and tougher economic challenges for the nation, necessitating rigorous adherence to the stipulations of such a financial strategy.
In conclusion, Kenya’s abandonment of the Ksh.63 billion IMF disbursement has significant implications for its fiscal future. The cessation of the EFF and ECF arrangements, coupled with a reliance on the RSF, creates both opportunities and uncertainties. Although there are prospects for a new program, the way forward poses challenges, particularly concerning investor confidence and economic discipline. The decision between a technical assistance model or a finance-based program will be crucial for the country’s economic resilience.
Original Source: www.citizen.digital
