The head of an International Monetary Fund staff team has said following a six-day visit to Kenya that the IMF is “fully committed” to helping authorities in the East African country develop policies to advance economic and governance reforms to address economic and fiscal challenges --  a prerequisite to unlocking new loans.

“The Kenyan authorities and IMF staff had productive discussions focused on crafting policies and reforms necessary to navigate the evolving economic landscape,” Haimanot Teferra said in a statement following the IMF staff visit to Nairobi from September 11-16.

“We remain fully committed to supporting the authorities in their efforts to establish a framework that will facilitate the completion of reviews under the ongoing programme as soon as feasible.” 

The IMF requires regular reviews of reforms – in Kenya’s case currently, every six months – before it releases tranches of funding. The latest review comes three months after Kenya scrapped a deeply unpopular budget bill after mass youth-led protests against it.

The Finance Bill, 2024, which President William Ruto rejected in late June after scores of protesters were killed in clashes with the police, aimed to raise more than $2bn in additional revenue through a raft of new taxes.

“The dropped bill aimed at increasing taxes to meet IMF conditions but faced fierce opposition from Kenyans already burdened by economic hardships,” the Standard newspaper noted.

“In light of the unrest, [Ruto] appointed a new finance minister, John Mbadi, signalling a potential shift in fiscal strategy. Mbadi will be tasked with navigating the complex landscape of public sentiment while working to align the government’s policies with IMF expectations.”

Recent proposals to reduce taxes—including lowering the value-added tax (VAT) from 16% to 14% and corporation tax from 30% to 25%—aim to provide relief to Kenyans facing economic hardships. However, the cuts could conflict with the IMF's loan conditions, placing Mbadi in a challenging position, Tuko News reported on September 18.

In 2021, Kenya entered into a four-year loan agreement with the IMF, and in May 2023 signed up for additional lending to fund climate change initiatives. This brought the total access to IMF loans to $3.6bn.

This June, the country achieved a staff-level agreement with the IMF for the seventh review of its ongoing programme, but the protests and subsequent withdrawal of the Finance Bill, 2024 put a sign-off by the IMF executive board on hold.

The Ruto administration’s approach to tax reform will be critical for the anticipated disbursement of a $600mn tranche, as well as restoring investor confidence and ensuring long-term fiscal sustainability.

“The [Kenyan] authorities expressed commitment to advancing economic and governance reforms which are crucial for fostering sustainable and inclusive growth that benefits all Kenyans. We will continue our discussions with the authorities,” Teferra said in the statement.