Kenya heads into fifth review as IMF firms grip on economic policy

Ahead of the fifth review of its multi-year arrangement with Kenya on Monday, the International Monetary Fund (IMF) has already positioned itself as a key shaper of the country’s monetary and fiscal policies.

From the increase of contributions to the National Social Security Fund to new taxes, elimination of fuel subsidies and even the expansion of the affordable housing project, the global lender has had a hand in recent policy pronouncements by the Kenya Kwanza administration.

The IMF Executive Board will meet next week to provide the green light for the continuation of its single biggest credit arrangement with Kenya under the extended fund and extended credit facilities in addition to considering a request for a new 20-month arrangement under the resilience and sustainability facility.

The forum will see the Washington-based institution monitor the progress of the country’s fiscal and monetary reforms, which are a prerequisite to the fund’s continued support.

During the last review in December, the IMF disclosed key fiscal and monetary policy reforms that Kenya was to execute in alignment with the multi-year arrangement which is largely underpinned on access to funding.

On the fiscal side, for instance, Kenya was to provide a comprehensive package of new tax measures to anchor fiscal consolidation, a requirement fulfilled through the passage of the 2023 Finance Act, albeit the current blockade of the implementation of new tax measures through a court petition.

“In the 2023/24 financial year, the adoption of a tax package of 0.9 percent of GDP will be critical to further reduce fiscal imbalances and broaden the tax base to make room for needed social and development spending.

In subsequent years, further improvements in strengthening spending efficiency and improving tax policy and revenue administration will remain essential,” the IMF stated in a December report.

Among notable tax measures carried in the 2023 Finance Act include the standard rating of VAT on petroleum products at 16 percent from the previous eight percent, the lifting of turnover tax on small and medium enterprises from one to three percent and the widening of the tax base through introduction of taxation on digital assets and digital content monetisation.

Moreover, the introduction of the housing levy by the Kenya Kwanza administration is similarly pegged on the agitation by the IMF.

The IMF had, nevertheless, asked that the programme be anchored on public/private partnerships instead of direct exchequer funding.

“Targeted interventions include increasing the supply of new housing and the share of affordable housing in total housing supply by offering low-cost mortgages and structuring affordable long-term housing finance schemes including a National Housing Fund Cooperative Social Housing schemes,” the IMF added.

Other fiscal interventions executed in recent months that bear the fingerprints of the IMF have included the January elimination of fuel subsidies, an end of budgetary support for beleaguered national carrier Kenya Airways, increased electricity prices through the Kenya Power tariff review in April and the publishing of the Conflict-of-Interest Bill.