InsightsKenyaMacroeconomic update

23 January 2024


In brief

  • The IMF disbursed a combined USD 684.7mn following its Executive Board’s conclusion of the sixth review under the Extended Fund Facility/Extended Credit Facility (EFF/ECF) and the first review under the Resilience and Sustainability Facility (RSF).
  • The Fund also accepted Kenyan authorities’ request for augmentation of access by approving additional USD 941.5mn under the EFF/ECF financing, which has been frontloaded in FY24 and has triggered exceptional access financing. Understandably, the urgency to secure multilateral financing amidst tighter financing conditions ahead of KENINT 2024 maturity in June triggered the request for augmentation of access. Although the IMF provided a window for member countries to increase their quotas by 50.0%, the tighter fiscal space ties the authorities’ hands to exercise that option in the near term, in our view.
  • We flagged some “tug-of-war” in the IMF’s prognosis of FX trajectory. Throughout the programme, the IMF has been unequivocal on exchange rate flexibility. From the latest review, the IMF has thrown its weight behind a continued tightened monetary policy bias which on face value, we infer as “KES strengthening” stance. We side with Camp exchange rate flexibility, on the back of FX rollover risk from the Government-to-Government oil credit importation deal coupled with the expected deterioration in banks’ net foreign asset by year-end.
  • Unsurprisingly, the IMF emphasized revenue mobilization, more so the recently published Medium Term Revenue Strategy (MTRS) for the first phase FY25 – FY27 period. The IMF cited a tabling of amendment tax laws in the National Assembly in mid-December to raise additional 0.4% of GDP in FY24, but we note that this was during the long parliamentary recess period and the piece of legislation is yet to be publicized. From our analysis of the National Treasury projections, the expected 5.0% increase in the metric to c. 20.0% by FY27 will entail an additional KES 665.4bn in the outlier budget year, from the current baseline.

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