International Monetary Fund (IMF) has approved the disbursement of a $605 million (Sh78 billion) loan to Kenya in a bid to bolster the country's fiscal position and resilience against climate-instigated shocks.

This latest funding comes as part of a broader financial package designed to support Kenya's economic recovery and address pressing fiscal challenges.

The IMF’s decision follows a series of reviews under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs, as well as the recently established Resilience and Sustainability Facility (RSF).

These programs, initiated in 2021, are intended to alleviate Kenya’s debt burden while ensuring adequate resources for essential social and development initiatives.

Despite recent economic improvements, including a stabilized shilling and increased foreign exchange reserves, Kenya continues to grapple with significant fiscal constraints.

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The shortfall in tax revenue during the 2023/24 fiscal year and the withdrawal of the controversial Finance Bill 2024 have hindered the government's efforts to consolidate its fiscal position.

Gita Gopinath, the IMF’s First Deputy Managing Director, acknowledged Kenya’s economic resilience but stressed the need for a robust fiscal consolidation strategy.

“In this context, a difficult adjustment path lies ahead. A credible fiscal consolidation strategy remains central to addressing debt vulnerabilities while protecting social and development spending,” Gopinath stated.

She highlighted the importance of reforming the tax system to enhance efficiency, equity, and progressivity while strengthening public financial management to bolster accountability, transparency, and efficiency.

“Reforms to make the tax regime more efficient, equitable, and progressive as well as strengthening accountability, transparency, and efficiency of public finances will help garner political and societal support for reforms," she added.

The IMF's support comes as President William Ruto's administration navigates a challenging political landscape.

Recent protests against the government's economic policies have underscored the delicate balance between fiscal discipline and social welfare.

As Kenya strives to balance its economic recovery with social and environmental concerns, the IMF's financial assistance will play a crucial role in shaping the country's future trajectory.