Rutonomics: Will IMF release $2.34 billion to Kenya this month?

An International Monetary Fund (IMF) delegation will arrive in Nairobi later this month to review Kenya's progress in implementing earlier promised economic reforms.

The outcome of the visit will inform the disbursement of the latest instalment of a $2.34 billion (Sh282.1 billion) loan programme first approved in April last year.

The latest review comes as an acid test for President William Ruto's new administration, which has hinted it will go big on social spending as it moves to address the runaway cost of living but also cut public borrowing.

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The IMF delegation will meet with officials from the National Treasury and the Central Bank of Kenya (CBK), Financial Standard has learnt.

The visit comes at a time when the new Kenya Kwanza administration faces a narrowing fiscal space to roll out its policies, amid high debt repayment obligations.

Kenya agreed to a three-year programme with the IMF last year.

Budgetary support

Nairobi consequently promised a raft of tough reforms, including narrowing its budget deficit, in return for the Sh282.1 billion loan package from the IMF spread over nearly three years and linked to progress on reforms.

The previous President Uhuru Kenyatta's government had turned to the IMF for budgetary support at the height of the Covid-19 economic crisis.

As part of the package, IMF gave the nod to a $235.6 million (Sh28.4billion) disbursement to Kenya three months ago.

This is after it approved a third review of the country's Extended Credit Facility and Extended Fund Facility arrangements.

The disbursement was to be deployed for budgetary support and brought such payouts to $1.208 billion (Sh145.9 billion) under the 38-month arrangement worth $2.34 billion (Sh282.1 billion) when it was approved in April 2021.

"IMF staff is closely engaged with the Kenyan authorities and will be beginning the fourth reviews under the EFF/ECF-supported programme later this month," an IMF spokesperson told Financial Standard in an interview. IMF last month maintained that control of expenditure and spending cuts in the new government will be vital to sustaining the economy.

The global lender wants the new government to continue cutting the budget deficit by growing tax revenues and curbing wasteful expenditure as debt levels near the permissible Sh10 trillion limit.

The new administration faces the uphill task of stabilising government finances and bringing surging living costs under control.

According to the IMF, "given Kenya's limited fiscal space and elevated debt vulnerabilities," the Ruto administration should "pursue multi-year fiscal consolidation while securing space for targeted social and development spending to support the vulnerable."

Depleted coffers

Kenya's public debt ballooned to Sh8.6 trillion in June from Sh1.9 trillion in 2013 when the previous Uhuru administration came to office, and the IMF classifies the country as being at high risk of debt distress. President Ruto followed up on a pledge to remove a fuel subsidy that had been criticised by the IMF.

Dr Ruto said the programme had strained the State's already depleted coffers, a move that has exposed motorists to record-high fuel prices.

The government had expected to spend Sh280 billion on fuel subsidies through the end of the fiscal year in June, equivalent to what it budgeted for development, Dr Ruto said in his inauguration speech on September 13.

A separate subsidy on maize was also scrapped. It cost as much as Sh7 billion, according to President Ruto.

Rather than targeting assistance to consumers, the new administration will seek to reduce food production costs and increase output by subsidising inputs such as fertiliser and quality seeds, he said.

The President recently also instructed Treasury to cut Sh300 billion from annual government spending this year to bring the country "back to sanity".

Dr Ruto is banking on former CBK Governor Prof Njuguna Ndung'u to navigate the economy through rising inflation, a heavy debt burden and drought.

Soaring prices

Kenya's inflation rose for the seventh straight month in September on soaring prices of food items, piling pressure on households.

The inflation-a measure of annual changes in the cost of living-hit 9.2 per cent in September from 8.5 per cent in August, the Kenya National Bureau of Statistics reported.

"I have instructed Treasury to work with ministries to find savings of Sh300 billion in this year's budget," said Dr Ruto last month in his maiden speech as President to parliament.

The IMF in the past urged for better tax collection by the State as well as reforms in loss-making State-owned companies such as Kenya Airways and Kenya Power.

The IMF believes these organisations are overstaffed and in some cases, employees are overpaid.