Kenya’s government has applied for a new lending programme with the International Monetary Fund (IMF) after opting out of the ninth and final review of its existing arrangement. This decision leaves approximately $800 million (Sh104.4 billion) undistributed but does not affect other funding sources, according to Finance Minister John Mbadi.
Impact on Other Funding Sources
Mbadi clarified that the government’s decision does not jeopardize funding from the World Bank, which is contingent on separate conditions, including the passage of a conflict of interest bill currently under review.
However, global credit ratings agency S&P has raised concerns that missing the IMF disbursement could complicate Kenya’s efforts to reduce debt-servicing costs and may hinder access to additional funding. The agency warned:
“Since IMF funding often serves as a catalyst for other official and private flows, we expect there might be delays to World Bank (about $800 million) and United Arab Emirates (UAE; $1.5 billion) funding in the first half of 2025.”
Foreign Reserves and Debt Strategy
Despite the potential funding delays, S&P noted that the government has accumulated substantial foreign exchange reserves, estimated at around $10 billion, which could help mitigate immediate financial shortfalls.
“In the meantime, the government has built up sufficient foreign exchange reserves of about $10 billion and could plug immediate concessional financing shortfalls with domestic funding or other commercial facilities, albeit at a much higher cost,” S&P added.
Balancing Fiscal Needs and Financial Sustainability
The decision to forego the final IMF review highlights the complexities of Kenya’s economic management strategy as authorities navigate short-term fiscal challenges while ensuring long-term financial sustainability. With multiple funding streams under scrutiny, the government faces the challenge of securing essential resources without significantly increasing borrowing costs.
This strategic shift underscores the delicate balancing act required to manage Kenya’s economic stability while maintaining access to crucial international funding.
