Kenya will be relieved from paying millions of shillings in surcharges to the International Monetary Fund (IMF), following a policy review by the multilateral lender to help countries cope with the impact of higher interest rates globally, that have pushed up borrowing costs.
Surcharges are additional fees levied by the IMF on loans to countries with outstanding credit to the IMF.
Surcharges are designed to discourage large and prolonged use of IMF resources by sticking to repayment timelines and borrowing quotas.
Currently, the IMF-set threshold is 187.5 percent of the quota– meaning that a country that borrows beyond this level pays extra interest on their loans by at least two percent.
According to the IMF database, Kenya has been paying the surcharges since February 2024 after breaching the allowed threshold of 187.5 percent of the quota in outstanding credit owed to the multilateral lender.
Kenya currently is at 247 percent of its debt quota—way above the IMF limit and has had to be surcharged.
This will change from November 1, 2024, after the IMF raised the quota threshold to 300 percent—which means that Kenya would be within the compliance bracket and not subject to surcharges. IMF is currently one of Kenya’s top creditors, with about Sh433.5 billion owed to the lender as of April this year, according to the latest statistics from the Treasury.
This year alone, Kenya has paid a total of Sh600 million in surcharges (Sh3.4 million Special Drawing Rights [SDR]) in three different transactions in February, May, and August, data from the IMF database shows.
The IMF SDR is an international reserve currency created to supplement the official reserves of its poor member countries. This helps countries to improve liquidity.
With the next repayment scheduled for next month, Kenya will pay at least Sh200 million less to the IMF, as the new threshold kicks off on November 1.
This year, the IMF decided to review its policy on charges and surcharges for the first time since 2016, as higher interest rates globally have pushed borrowing costs higher.
The review, which is part of the lender’s efforts to reform the global financial architecture as demanded by African leaders and economists, is meant to reduce borrowing costs for highly indebted countries.
“The approved measures will lower IMF borrowing costs for members by 36 percent, or about $1.2 billion (Sh155 billion) annually. The expected number of countries subject to surcharges in fiscal year 2026 will fall from 20 to 13,” IMF managing director Kristalina Georgieva said.
The IMF said the charge above the fund’s interest rate will be lowered, while the amount and duration thresholds will rise, as will the threshold for commitment fees.
Currently, Kenya is one of the 20 countries globally paying surcharges, and among the nine from Africa, most of which will also now be struck off the list, getting relief from the high-interest fees on IMF loans.
Others set for the relief are Cote d’Ivoire, Tunisia, Senegal, Benin, and Gabon. Egypt, Angola, and Seychelles will continue to pay the surcharges as their debt to the global lender is still above the new threshold.
The surcharges policy has been widely criticised by economists and experts in Africa and beyond, who say the fees disproportionately affect poor countries that are already facing economic hardships by increasing their debt burden.
But the IMF has always argued that the surcharges are meant to disincentivise reliance on the lender by countries, and encourage them to quickly repay the debt owed to it and also avoid accumulating more debt.
Despite widespread calls to scrap the surcharges, Ms Georgieva said they still help in “safeguarding the IMF’s financial capacity to support countries in need.”
“Together, charges and surcharges cover lending intermediation expenses, help accumulate reserves to protect against financial risks, and provide incentives for prudent borrowing,” Ms Georgieva said.
“This provides a strong financial foundation that allows the IMF to extend vital balance of payments support on affordable terms to member countries when they need it most.”
