Kenya asked the International Monetary Fund (IMF) to trim its access to the lender’s funds by Sh37.6 billion, noting reduced spending pressures and alternative sources of financing.
The IMF has granted Kenya its wish, reducing the country’s remaining access to the fund’s multi-year programme which expires in April next year to Sh188.4 billion ($1.459 billion) from Sh226 billion ($1.75 billion) previously.
The remaining access is inclusive of the Sh78.3 billion ($606.1 million) disbursement approved by the IMF Executive Board last week.
The adjustments explain the cut on disbursements from the seventh and eighth reviews which had previously been expected at about Sh113 billion.
Eurobond
“With Kenya’s success in issuing a Eurobond in February to early buyback a significant share of the 2024 Eurobond, coupled with financing from the Trade Development Bank $506 million (Sh65.3 billion and the World Bank $1.2 billion (Sh155 billion) in development policy finance, the exceptional balance of payment needs that were anticipated at the time of the sixth EFF/ECF reviews have dissipated,” the IMF stated.
“In view of this and given some upside potentials to the 2024/25 external financing, staff and the authorities consider access under the extended fund facility and extended credit facilities (EFF/ECF) arrangements within the normal access limits to meet the residual balance of payments needs during the remainder of the EFF/ECF arrangements.”
Kenya at the same time requested the rephasing of the balance, pushing most of its remaining access out to the ninth review to be approved at the end of the programme in April 2025.
The proposed rephasing is seen as an alignment to Kenya’s balance of payment needs and will see Kenya receive about Sh110.2 billion ($853.7 million) as the last disbursement from the programme which has run since April 2021.
IMF funding
The reduced funding from the IMF will see Kenya stick within the normal access limit, a signal of confidence to the market on Kenya’s easing funding squeeze.
Kenya at the same time sees a lower cumulative access to IMF funding as a reduction of the country’s exposure to multilateral institutions.
The perceived ease to the funding squeeze is nevertheless against a push by Kenya to access a Sh193.7 billion ($1.5 billion) commercial loan with the backing of the United Arab Emirates (UAE).
Kenya and the IMF have agreed to cut funding from the multilateral lender despite the Washington DC-based lender opposition to the UAE loan which it deems as too expensive.
The commercial loan is presently under consideration with the National Treasury hiring an advisor for the seven-year facility priced at 8.25 percent.
Kenya is seeking to diversify its sources of financing after deadly protests in June which saw the government abandon a raft of new tax measures backed by the IMF.
IMF has insisted that concessional financing remains the best option for Kenya even as it agrees with the request by Kenya to lower access from its facilities.
“External financing on concessional terms could complement the needed policy adjustments while helping to meet financing pressures and alleviate debt sustainably, including those caused by natural disasters,” the IMF added.
