(Bloomberg) -- The International Monetary Fund is reviewing the impact on Kenya’s economy of a court ruling that nullified a set of taxes introduced in 2023 before it approves another disbursement to the East African nation.
The lender is studying the legal challenge, along with President William Ruto’s decision to scrap the contentious taxes after they triggered deadly anti-government protests in June and July.
The assessments are “ongoing,” an IMF spokesman said in an emailed response to questions on Wednesday. The fund “remains committed to supporting the Kenyan authorities in addressing the economic challenges” it faces, the spokesman said.
Quashing the levies that were introduced last year — including doubling value added tax on fuel to 16% — slashes government revenue by about 214 billion shillings ($1.66 billion) and may mean further budget cuts, according to Treasury Principal Secretary Chris Kiptoo.
Kenya was forced to trim its budget for the period through June 2025 by 3%, increase borrowing and widen the projected fiscal deficit to 4.2% gross domestic product from an initial 3.3%, after the anti-government protests that led to the death of at least 61 people. The country’s credit ratings have been cut deeper into junk by the three major ratings companies in the wake of the scrapping of the taxes.
Delayed Disbursement
The IMF has yet to set a date for a board meeting to discuss Kenya’s ongoing $3.6 billion program, which is scheduled to end in April. The gathering had been expected last month, after being moved from an initial date of end-June.
Kenya expects a disbursement of about $600 million from the IMF from the latest review, according to central bank Governor Kamau Thugge.
Without approval of the IMF funding, Kenya’s Treasury may have to rely on domestic borrowing, according to Churchill Ogutu, an economist at IC Asset Managers.
“The risk of Kenya going off track will impact other financing, such as commercial borrowing,” he said by phone. “The optics of that will be quite risky for them.”
The nation’s Supreme Court will start hearings backing the so-called Finance Act 2023 on Tuesday. The top court last month issued a conservatory order suspending a ruling by an Appeal Court that the taxes were unconstitutional.
(Updates with analyst comment in penultimate paragraph)
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