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PREVIEW
The new government has to make many politically difficult choices on cuts in its supplementary budget due in a few weeks
President William Ruto's government has secured an endorsement from the IMF on 8 November giving it access to some US$433 million, out of its three-year $2.34 billion extended fund facility, but it will come at the cost of more austerity measures likely to be announced soon in a supplementary 2022-23 budget. Economic growth has slowed for four successive quarters, Kenya's National Bureau of statistics reported last month.
This latest agreement doesn't refer directly to Kenya's expanding debt service burden other than to state the loan amount includes an extra allocation of $210m to meet external financing needs, 'resulting from drought and challenging global financing conditions.'
During his election campaign and with an eye on the rating agencies' reaction, President Ruto insisted that he would not restructure or reschedule Kenya's debt. His opponent Raila Odinga had pledged he would open discussions with creditors about stretching out some of the repayment periods to allow the new government more budgetary flexibility.
Ruto's predecessor Uhuru Kenyatta rolled over $695.4m in debt repayments in the 2021/22 fiscal year equivalent to 0.7% of the country's gross domestic product, the IMF stated following its latest staff review, though without naming the creditors.
The brings the IMF's finance for Kenya to about $1.55bn in this programme, according to its delegation to Kenya led by Mary Goodman and Tobias Rasmussen.
After underplaying the significance of Kenya's financing crisis – public debt almost doubled during the Uhuru-Ruto decade from 36% to 69% – Ruto has now made debt reduction and budgetary discipline the main priorities of his government's economic management (AC Vol 63 No 8, Battling over the legacy).
Ruto has already watered down the generosity of the Ksh50bn ($407m) 'hustler fund' which had been at the heart of his promise to small businesses. Most fuel subsidies were scrapped in September and variable cost adjustments in electricity prices reinstated (AC Vol 63 No 21, The hustler backs austerity). Those measures prompted a rise in fuel and power prices and more pain is likely to come.
So, too, is privatisation or at least part-privatisation of up to ten parastatals, which Ruto has promised. The early targets are likely to be the Kenya Ports Authority and the Kenya Pipeline Company. And the government has told the IMF it will be restructuring the troubled state-owned carrier Kenya Airways and the Kenya Power & Lighting authority – both organisations had been undermined by political patronage and opaque procurement contracts.
The IMF said that Ruto's government is 'taking forceful measures to further reduce the fiscal deficit', including deep spending cuts aim to reduce the budget deficit further from 5.9% of GDP but will boost allocations for drought-hit communities.
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