Kenya is seeking a new agreement with the IMF as its current program concludes amid significant debt challenges. The government’s struggle with tax revenue has led to heavy debt servicing costs, surpassing expenditures on health and education. Recent protests highlight the critical need for effective fiscal reforms, as the IMF agrees to pause the review of the existing lending program with Kenya.
On Monday, the International Monetary Fund (IMF) announced that Kenya will pursue a new agreement as the current program concludes. Although Kenya is regarded as an economic beacon in East Africa, it faces substantial challenges with approximately $80 billion in both external and domestic debt. Debt servicing consumes two-thirds of Kenya’s annual revenue, significantly overshadowing funding allocated for health and education, while tax revenue remains sluggish.
Last year, protests broke out over President William Ruto’s proposal to increase taxes. In an official statement, the IMF disclosed that it has received a formal request from the Kenyan authorities for a new program and will continue discussions on the matter. Consequently, officials have decided to pause the ninth review of the existing $3.6 billion lending program, which commenced in 2021 and is set to end in April 2024, with a final disbursement of $606 million due in October.
The specifics of the forthcoming IMF program remain uncertain. Economist Churchill Ogutu commented on the situation, stating, “It’s not surprising that they are shelving the ninth review completely because of the non-adherence to the targets.” He highlighted that Kenya’s failure to meet the IMF’s tax increase requirements diminishes the chances of receiving necessary funding. Looking forward, he suggested that Kenyan authorities might consider adopting a more favorable tax policy to prevent protests similar to those experienced last year.
In summary, Kenya’s efforts to establish a new agreement with the IMF come at a critical economic juncture, characterized by high debt levels and fiscal challenges. The shelving of the ninth review of the current lending program emphasizes the need for adherence to financial targets, particularly regarding tax reforms. Moving forward, the Kenyan government faces the imperative to develop a tax policy conducive to both economic stability and public acceptance.
Original Source: www.thenews.com.pk
