Kenya Revives Tax Efforts After Securing 606m Imf Loan

The International Monetary Fund IMF executive board has approved the seventh and eighth reviews of Kenyas program loan, unlocking 606m in fresh funding.

This latest disbursement is seen as crucial after deadly protests against new tax proposals in June and July disrupted funding discussions between authorities and the IMF, worsening liquidity challenges for a government already grappling with high debt service costs.

In return for the support, Kenyas government has pledged to expand efforts to reduce its fiscal deficit and enhance domestic resource mobilisation, suggesting that it will again move to increase taxation. It has also indicated that it will reduce its reliance on borrowing by leveraging public-private-partnerships PPPs and implementing a series of spending cuts to boost efficiency in the public sector.

However, the IMF cautions in its latest staff report for Kenya that while austerity measures are necessary, they must be carefully targeted to avoid adversely impacting priority sectors such as education and health. It warns that cuts in these areas could hinder long-term economic growth and human capital development. Additionally, the IMF advised against reducing funding for the Kenya Revenue Authority KRA so as not to impact its capacity to implement tax reforms.

Kenyas economy remains resilient, with growth above the regional average, inflation decelerating, and external inflows supporting the shilling and a buildup of external buffers, despite a difficult socio-economic environment, said IMF First Deputy managing director Gita Gopinath.