An International Monetary Fund (IMF) delegation has arrived in Kenya to assess the economic fallout from a recent court ruling on tax measures, as well as an expanded budget deficit that has disrupted a $3.6 billion financing agreement.
IMF spokesperson Julie Kozack described the visit as “a fact-finding mission” aimed at maintaining ongoing and constructive dialogue with Kenyan authorities to find a balanced way forward.
Kenya’s next loan review and scheduled payment from the IMF were delayed following widespread protests over proposed tax increases, which resulted in the deaths of more than 60 people. In response to public outcry, the government was forced to widen its budget deficit by 28% after abandoning contentious revenue-generating measures.
The next IMF review, which is anticipated to unlock about $600 million, is currently under review, according to Central Bank of Kenya (CBK) Governor Kamau Thugge. However, the IMF has indicated that it is assessing the effects of a court decision that overturned a set of tax laws introduced in 2023, which must be reviewed before any further disbursement can be approved.
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The invalidated tax measures, including the doubling of value-added tax (VAT) on fuel to 16%, could reduce government revenue by approximately Ksh.214 billion ($1.66 billion), according to estimates from the National Treasury.
Additionally, the IMF is scrutinizing President William Ruto’s recent decision to drop other unpopular tax measures that had sparked mass protests. These taxes were projected to generate around $2.7 billion for the current fiscal year.
As a result of these developments, the Kenya Kwanza administration is now forecasting a wider fiscal deficit of 4.3% of GDP, up from the 3.3% initially projected in its June budget presentation.
Balancing Debt and Revenue
Kenya’s deteriorating fiscal situation has drawn concern from credit-rating agencies, all three of which have downgraded the country’s debt further into junk territory. The downgrades reflect concerns over the government’s ability to generate sufficient revenue.
Kenya remains at high risk of debt distress, and reducing that risk remains a key priority of the ongoing IMF program.
