IMF Staff Country Reports

This paper analyzes Kenya’s Seventh and Eighth Reviews under the Extended Fund Facility and Extended Credit Facility Arrangements, Requests for Reduction of Access, Augmentation and Rephasing of Access under the Arrangements, Modifications of Performance Criteria, Waiver of Nonobservance of Performance Criteria, and Review under the Resilience and Sustainability Facility Arrangement. Resolution of the exceptional external financing pressure earlier this year has revived market confidence, aided stabilization of the shilling, and enabled a faster buildup of foreign exchange reserves. However, large revenue shortfalls in FY2023/24 and pushback against revenue measures owing to governance concerns pose a challenge to the ongoing fiscal consolidation efforts. The Kenyan authorities face a difficult balancing act of boosting domestic revenues to protect critical spending in priority areas while meeting heavy debt service obligations. Delivering on this would call for improving governance and transparency to restore public trust in the effective use of public resources. Timely identification and deployment of fiscal contingency measures, as needed, maintaining prudent policies, recalibration of access, and a tailored capacity development strategy to help deliver on the reform agenda could somewhat help mitigate the elevated enterprise risks, including financial risks to the IMF. Success in climate finance mobilization efforts presents an upside to investments in climate resilience.