Transcript of Virtual Media briefing on Kenya’s 7th and 8th Reviews Under the EFF/ECF and RSF Arrangements

IMF News, November 5, 2024

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Canonical URL: Transcript of Virtual Media briefing on Kenya’s 7th and 8th Reviews Under the EFF/ECF and RSF Arrangements

The IMF Board approved a disbursement of $606 million under the EFF/ECF and RSF arrangements.
Reports for the seventh and eighth reviews and the RSF review are published on IMF.org.

For the seventh and eighth reviews there were ten structural benchmarks.
IMF assessment:
- One benchmark was met on time.
- Only two benchmarks were formally rescheduled to the next review.
- The remaining benchmarks were implemented with significant delays but were completed by the time of the Board meeting.
- A couple of benchmarks became outdated as they related to a prior supplemental budget.

The RSF can continue even if the EFF/ECF ends, enabled by recent changes to RSF design.
Governance diagnostics (requested by Kenyan authorities) are:
- A diagnostic, not a program conditionality.
- Intended to identify governance weaknesses and provide recommendations for authorities and development partners.
- Expected to take eight months to a year, requiring several missions and a dedicated team.

Observed change in fiscal QPC: a shift from tax revenue to ordinary revenue measures (as reflected in the December 2022 to December 2024 QPC chart).
Rationale and technical clarifications:
- Ordinary revenues include tax revenues plus certain non-earmarked untaxed receipts (excluding Appropriations in Aid (AIA)).
- The TMU explicitly excludes AIA.
- The change provides limited flexibility requested by authorities; tax revenues remain a large component of ordinary revenues.
- IMF describes the change as not materially significant in substance.

The EFF program cannot be extended further under current rules; the program was extended previously up to the maximum feasible (during the fifth review).
Post-program engagement:
- Authorities have indicated they want to continue engagement with the IMF; the form (funded program vs. precautionary arrangement) is to be decided in coming months.
- A precautionary arrangement is unlikely if balance of payments needs persist and other resources are not mobilized.
Exceptional access rationale and limits:
- IMF lending is grounded on balance of payments needs, not budget support per se.
- Earlier exceptional access related to an extraordinary balance of payments need (Eurobond maturing).
- With improved balance of payments indicators (exchange rate stabilization, reserves buildup), exceptional access is less justifiable; access was limited to no more than 40% of quota as discussed.

IMF notes increased debt vulnerabilities, particularly on the external debt side.
Debt service to exports and revenue ratios have worsened (as stated in the published Debt Sustainability Analysis).
On potential bilateral borrowing (e.g., Abu Dhabi/UAE 1.5 billion loan):
- IMF does not comment on specific bilateral negotiations.
- Assessment focus: whether new borrowing reduces debt vulnerabilities and improves debt dynamics (e.g., refinancing higher-cost debt is favorable; borrowing at high cost for budget financing is problematic).
- Fiscal framework strength and the authorities’ capacity to service debt are crucial contextual factors.

IMF emphasizes broadening the tax base and improving tax system efficiency rather than exclusively raising tax rates.
Key points:
- Significant revenue loss is associated with tax expenditures; revisiting these is necessary.
- The Medium-Term Revenue Strategy (MTRS) details reform areas and sequencing; policy predictability and multi-year planning are important.
- Public accountability and transparency in public finance are essential to increase acceptability of revenue measures.
IMF references existing public documents for specific reform options:
- The MTRS and the "selected issues" paper published in January (which analyzes tax revenue decline in Kenya and comparative EAC context).

Kenya’s finance minister expressed concerns about dignity in IMF engagement; IMF response highlighted the underlying point that Kenya can mobilize more domestic resources and the IMF program provides bandwidth to do so.
The addition of a third Executive Board seat for Africa was noted as a long-sought milestone intended to increase regional representation; implications for policy influence were acknowledged but not detailed by the mission chief.