Kenya has abandoned a Ksh.63 billion IMF disbursement, ending the EFF and ECF programs. The government seeks a new arrangement, focusing on fiscal reform while facing potential challenges in investor confidence and economic stability. Experts recommend exploring a capacity-building approach to enhance self-reliance and manage stricter compliance conditions.
Kenya has recently opted out of a Ksh.63 billion ($470 million) disbursement from the International Monetary Fund (IMF), initiating a new path to reform fiscal policies. This decision will terminate the existing Extended Fund Facility (EFF) and Extended Credit Facility (ECF), leaving the Resilience and Sustainability Facility (RSF) as the sole active program. The EFF and ECF were designed to assist countries in overcoming inflation-related challenges through structured financial support.
The EFF program permits a four-year restructuring period, while the ECF can be extended up to five years. As part of its previous agreement with the IMF, Kenya was set to receive Ksh.467.5 billion under these arrangements, having so far obtained Ksh.404 billion. Therefore, the cessation of the program results in an unaccessed fund of Ksh.63.4 billion, which Kenya will not receive. Economic experts have indicated that the Kenyan government was faced with challenging fiscal targets and would have likely missed critical funding had the ninth review been conducted without major improvements.
From an investment perspective, withdrawing from IMF programs raises concerns in the financial markets. The terms of Kenya’s request for a new program remain uncertain, contributing to a decline in investor confidence and potential capital flight. Such instability could lead to a depreciation of the Kenyan shilling, subsequently increasing the costs of imports and exacerbating inflation, which adversely affects the cost of living for citizens.
IMF programs facilitate accountability in national spending and foster financial discipline through economic oversight. The absence of such programs may lead to economic inefficiencies and deter foreign investments, which often view IMF support as a benchmark for economic stability. However, the request for a new program provides some temporary relief for investors by signaling a commitment to ongoing financial negotiations.
Economist Churchill Ogutu suggested three potential avenues for Kenya’s new arrangement: financed programs, non-financed (capacity building), and insurance-based programs. He advocates for a capacity-building approach, emphasizing the importance of technical assistance from the IMF to achieve self-reliance. He cautions that opting for a finance-based program may impose stricter conditions, making compliance more challenging for Kenya amidst its current economic situation.
Kenya’s departure from the Ksh.63 billion IMF disbursement reflects its need for reform in fiscal policies while raising uncertainty in the financial markets. While the country contemplates new arrangements, expert suggestions lean towards a capacity-building approach to ensure sustainable economic stability. The potential risks posed by decreased investor confidence and inflation need to be carefully managed to avoid adverse economic conditions in the future.
Original Source: www.citizen.digital
