International Monetary Fund Boosts Kenya's Financial Lifeline with $682.3 Million Tranche
20 November 2023
International Monetary Fund Boosts Kenya's Financial Lifeline with $682.3 Million Tranche
The International Monetary Fund (IMF) announced on Thursday that a staff-level agreement had been reached, unlocking immediate access to a $682.3 million tranche.
This move amplifies the existing lending program by an additional $938 million. The East African nation has been grappling with acute liquidity challenges, exacerbated by uncertainties surrounding its ability to secure funding from financial markets before a $2 billion Eurobond matures in June 2023.
The IMF highlighted that Kenya's economic struggles stem from a combination of factors, including the lingering impact of the COVID-19 pandemic and frequent climate change-induced droughts. The conclusion of a two-and-a-half-week review mission to Nairobi shed light on the country's strained balance of payments and financial positions. Haimanot Teferra, head of the mission, emphasized the compounding challenges arising from tightening global financing conditions for frontier economies and escalating global geopolitical tensions.
Subject to the approval of the IMF's executive board in Washington, Kenya stands to gain access to a total of $3.88 billion. This substantial injection would bring the country's total funding under the existing Extended Fund Facility and Extended Credit Facility arrangements to $4.43 billion.
The current program initially agreed upon in April 2021, witnessed its first augmentation in May, with an additional $1 billion, including $544 million under the IMF's Resilience and Sustainability Facility (RSF). The latest boost under the same RSF reaffirms the IMF's commitment to supporting Kenya through its economic challenges.
TAX
Payroll Taxes Fall Short in Q1, Reflecting Struggles in Kenya's Labor Market
In a stark indicator of the challenges faced by Kenya's labor market, payroll taxes for the first quarter of the current financial year have fallen significantly short of the target, marking the largest margin since the peak of the Covid-19 pandemic.
According to recent disclosures from the National Treasury, the Kenya Revenue Authority (KRA) garnered Sh123.04 billion from workers' earnings in the July-September 2023 period, falling short of the Sh142.93 billion goal by 13.91 percent, equivalent to Sh19.88 billion.
This underperformance is the most significant since the 2020/21 financial year when the shortfall reached 21.12 percent or Sh19.16 billion, primarily attributed to Covid-related reliefs between May and December 2020.
The decline in Pay as You Earn (Paye) collections, despite an 11.38 percent growth to Sh110.47 billion, suggests a struggling labor market where firms are grappling to create new jobs and provide salary increments.
The expectation of higher job growth, as indicated by the growth in Paye, contrasts with the reality of the slowdown in overall payroll tax revenues. The William Ruto administration had seemingly anticipated a more robust employment landscape, pointing to the widening gap between projections and actual performance.
ECONOMY
Treasury Sounds Alarm Over Sh133.5 Billion Revenue Shortfall Amidst Declines in Key Sectors
Treasury has raised concerns about a potential loss of Sh133.5 billion in projected revenue for the current financial year.
The apprehension stems from a notable decrease in motor vehicle and fuel imports, coupled with lower-than-expected sales of alcoholic beverages, spirits, and cosmetics.
According to the latest budgetary outlook paper, the Treasury had set a target of Sh2.58 trillion for ordinary revenue, a figure based on the anticipated tax receipts from the previous fiscal year, which ultimately fell significantly short of the estimates.
The 2023 Budget Review and Outlook Paper (BROP) released by the Treasury unveiled that the actual ordinary revenue for the previous financial year concluded Sh104.3 billion below the estimates used as the foundation for projecting revenues for the ongoing financial year.
Treasury officials expressed their concerns in the report, stating,
"Given this revenue shortfall, the projections for FY 2023/24 have an estimated revenue risk of Sh133.5 billion."
AGRICULTURE
The International Finance Corporation (IFC) Commits Sh31.96 Billion ($210 Million) Investment in Eni Kenya's Agribusiness Project
The International Finance Corporation (IFC) announced its intention to invest Sh31.96 billion ($210 million) in an agribusiness project led by Italian firm Eni Kenya.
The investment, structured as a senior loan, aims to support Eni Kenya's capital requirements for the construction and operation of agri-processing plants in the country. The total cost of the ambitious project is estimated at Sh32.41 billion ($213 million), with the World Bank's private sector lending arm committing to mobilizing an additional Sh11.41 billion ($75 million) from other lenders.
Eni Kenya's agribusiness initiative involves the establishment of biofuel projects in Makueni and Kwale counties, with a third agri-processing plant planned for construction in Nakuru county and a fourth at a location yet to be determined.
The core of the project lies in the contractual engagement of third-party farmers and aggregators who will supply oil seeds (feedstock) to Eni-owned agri-processing plants.
These seeds will undergo processing to produce vegetable oils, intended for export to Eni bio-refineries in Italy.
Once in Italy, the oils will undergo further refinement, ultimately contributing to the production of various bio-energy products, including biofuels.
GOVERNMENT
Government Vows Transparency in Naming Defaulting Ministries and Agencies Amid Soaring Arrears
The government has committed to publicly naming ministries, departments, and agencies (MDAs), along with parastatals that fall behind or default on payments for services and goods. The decision was prompted by a staggering surge in arrears during the first year in office. Despite longstanding complaints from the public about the lack of disclosure at the national level in quarterly budgetary reports, the Treasury has historically refrained from naming defaulters, even though these entities constitute the majority of pending bills.
The announcement follows persistent demands from the public for greater accountability and disclosure. Although pending bills for each county are regularly published every three months, information on MDAs and state-owned enterprises (SOEs) has typically been presented as a cumulative figure without a detailed breakdown. The government's commitment to naming defaulting entities aims to address this information gap and foster a more transparent financial system. The move is seen as a response to the public outcry and a step towards holding ministries and parastatals accountable for their financial obligations.
WHAT YOU MIGHT HAVE MISSED
Bamburi Cement's Share Price Surges 17.7% on Proposed Ugandan Subsidiary Sale
In a noteworthy development on the Nairobi Securities Exchange, Bamburi Cement has experienced a significant boost in its share price, soaring by 17.7% following the announcement of the proposed sale of its Ugandan subsidiary for Sh12.7 billion. Investors are optimistic about the potential windfall from the divestment, anticipating a distribution of part of the proceeds as dividends. The NSE-listed firm witnessed a remarkable uptick on Thursday as its stock closed at Sh26.5, marking a substantial increase from Sh24.1 on the preceding day and Sh22.5 the previous Thursday. The trading session saw an above-average volume of 79,000 shares changing hands, underscoring the heightened investor interest in response to the strategic move by Bamburi Cement.
IWG plc Invests $850,000 in Nairobi for State-of-the-Art Co-Working Space
Switzerland-headquartered serviced offices firm, IWG plc, has made a significant investment of $850,000 (approximately Sh127.50 million) to establish a cutting-edge co-working center in Nairobi. Positioned at the Global Trade Centre Office (GTC) Tower, Kenya's second tallest building following Britam Towers, the new workspace facility caters primarily to employees from various companies and independent contractors. IWG plc aims to meet the growing demand for flexible workspaces in Nairobi, providing professionals with a dynamic and collaborative environment conducive to productivity.
Kenya Deposit Insurance Corporation (KDIC) Warns Against Altering Compensation Model and Increasing Deposit Insurance Limits
In a recent development, the Kenya Deposit Insurance Corporation (KDIC) has issued a warning against potential changes to the compensation model and an increase in insured deposits beyond Sh500,000. The KDIC Chief Executive, Hellen Chepkwony, emphasized in an interview with the Business Daily that such alterations could have severe consequences, fostering recklessness among lenders and potentially triggering a surge in bank failures. According to Chepkwony, the corporation's latest review indicates that the current coverage is sufficient for the sector, and any further raise in insured deposits would introduce a moral hazard, jeopardizing the stability of the financial system.
Government Mandates Minimum Monthly Salary of Sh30,000 for Private Security Guards
The government has issued a Gazette notice compelling employers to pay a minimum gross salary of Sh30,000 per month. This directive, published by the Private Security Regulatory Authority, is expected to benefit approximately one million private security guards employed by 2,000 security companies across the country. The move is part of the government's commitment to enhancing the terms of service and benefits for this vital workforce.
According to the Gazette notice, failure to comply with the new salary structure will result in significant penalties for employers. Those who do not adhere to the directive could face fines of Sh2 million, and in more severe cases, imprisonment along with fines. The proposed minimum gross pay of Sh30,000 includes a basic pay of Sh18,994, a house allowance of Sh2,850, and an overtime allowance of Sh8,157. After deducting statutory contributions such as the National Social Security Fund (Sh1,080), Social Health Insurance Fund (Sh825), Pay As You Earn (Sh1,229), and the Affordable Housing Levy (Sh450), private security guards can expect a minimum of Sh26,415 to be deposited into their bank accounts each month.