The board of the International Monetary Fund (IMF) has approved waivers for non-observance of its revenue raising conditions accompanying its loans to Kenya, after the widespread protests in June forced the government to abandon new tax measures.
The multilateral lender on Wednesday released $606 million (Sh78.3 billion) to support the government budget for the current financial year, despite Kenya’s failure to meet set targets by the end of 2023 and June 2024.
The waiver means that Kenya can continue to access funding from the global lender and is an acknowledgement that the factors that led to the non-observance of the conditions were not entirely within the government’s control.
“The Board approved waivers of non-observance for the end-December 2023 tax revenue and the end-June 2024 primary budget balance and tax revenue targets,” the lender said on Wednesday.
“The fiscal consolidation efforts have faced headwinds following a sizeable tax revenue shortfall in FY2023/24 and withdrawal of the Finance Bill, 2024 after widespread public protests.”
The IMF expected the government to raise at least Sh1.27 trillion in tax revenue by end-December 2023, and at least Sh2.4 trillion as of June 2024, both of which were not met, prompting the lender to recommend corrective actions to raise more revenue.
In the six months to December 2023, the Kenya Revenue Authority collected Sh1.09 trillion, missing the target by Sh186 billion. It collected Sh2.3 trillion by the end of the financial year in June 2024, missing the overall benchmark by Sh172 billion.
A number of other benchmarks under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) were also not met. The conditions normally accompany IMF funding to countries, and are meant as corrective measures to ensure financial stability and economic sustainability of the country.
“Corrective actions have been taken on missed quantitative targets. The authorities have submitted to Parliament corrective measures to remedy this underperformance and to ensure it does not impact achievement of the end-June 2024 tax target,” IMF said in a report on Kenya in January.
New tax measures proposed in the Finance Bill 2024 were meant to raise the government’s tax revenue and keep the budget deficit within the targets set by the global lender.
Widespread protests over the proposed taxes however forced President Willam Ruto to abandon the bill after legislators voted for it, resulting in shortfalls in revenue targets.
Non-observance of IMF conditions under different facilities often leads to delayed reviews of the programmes, suspension of disbursements, and sometimes even cancellation of the programmes.
The waiver hands Kenya a reprieve for a while, but must continue working towards the targets or risk cancellation of IMF programmes with the government.
