IMF approves $551.4mn to support Kenya’s climate change resilience efforts

Kenya's climate change resilience efforts have received a significant boost as the IMF Executive Board recently approved a 20-month arrangement under the Resilience and Sustainability Facility. Haimanot Teferra, the IMF Mission Chief for Kenya, shed light on the program during an exclusive interview with CNBC Africa. The ongoing program with Kenya, known as the ECF and EFF program, has been under review. The authorities also requested a new facility, the Resilience and Sustainability Facility, to address climate-related challenges. The fifth review of the program focuses on a package of policies aimed at supporting macro stability and enhancing market confidence amidst a challenging global outlook for frontier economies. The policies aim to tackle both domestic challenges, such as pending bills and revenue mobilization difficulties, as well as external challenges. Key policy priorities include a supportive monetary policy to combat inflation, enhance external sustainability, and a multi-year fiscal consolidation plan that focuses on revenue mobilization and spending rationalization. The program aims to realign policies to achieve these objectives effectively. Additionally, efforts to reduce debt vulnerabilities through multi-year fiscal consolidation, tax revenue increases, and spending rationalization are also part of the policy recommendations. However, the execution of these policies faces challenges, including planned protests over tax reviews and the high cost of living endured by citizens. Teferra emphasized the importance of fair and equitable tax policies, widening the tax base, strengthening tax compliance, and ensuring that tax measures do not disproportionately impact vulnerable groups. He highlighted the need for careful balancing of policies to address rising living costs and demands on the budget while focusing on domestic revenue mobilization. Despite concerns raised over additional borrowing through the IMF program, Teferra clarified that the funding provided is affordable with longer maturity, and aims to support Kenya's capacity for repayment. The program is designed to address emerging challenges, foster sustainable and inclusive growth, and bolster the economy's resilience to climate-related shocks. Growth projections for Kenya stand at around 5% for the current year, with potential variations based on global economic conditions and domestic policy environment. The private sector is expected to drive much of the growth despite challenges posed by inflation and fiscal consolidation measures. Finally, amidst discussions on debt forgiveness or debt pause to alleviate rising poverty rates, Teferra emphasized the importance of balancing debt servicing with social and development spending. He underscored the need for Kenya to manage its debt repayment obligations while also addressing emerging social needs, highlighting the importance of striking a careful balance between the two.