Kenya has a public debt of $70 billion, but loan repayments have soared as the value of the shilling, the local currency, has fallen to its lowest level against the dollar.
In an effort to ease the strain on its finances, President William Ruto’s government has drawn up a 3.6 trillion shillings ($26.2 billion) budget for the 2023-2024 fiscal year, proposing tax cuts which are expected to generate about 289 billion shillings in revenue.
The agreement with the IMF, which requires approval by its board of directors in July, follows a mission by a team from the international credit institution to the country earlier this month.
The fund said in a statement on Tuesday that its total commitments to Kenya will increase to $3.52 billion from $2.43 billion agreed in April 2021.
If the deal is approved in July, Kenya will have immediate access to $410 million, the fund said.
Kenya is struggling with a high cost of living, severe drought and a depreciating local currency. Its economic growth has slowed, registering 4.8% last year, compared to 7.6% in 2021.
“The government’s budget is under pressure due to revenue collection failures and difficult financing conditions,” the fund said.
The fund urged the government to reform state-owned enterprises such as the loss-making national airline Airlines and the utility company Kenya Power.
Ruto’s government is seeking to partially reduce its budget deficit by taxing a range of products such as cosmetics, gambling, various foodstuffs and fuel, measures criticized by the opposition as penalizing ordinary Kenyan citizens.
While the International Monetary Fund said it has a positive medium-term outlook for the Kenyan economy, “significant challenges remain due to slow global economic growth and difficult financial conditions.”
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