Kenya is pursuing a new program with the IMF after abandoning the current one due to rising debt costs. The IMF confirmed receipt of Kenya’s formal request for support, crucial to managing escalating debt obligations. The country has faced economic strain from high government spending, prompting the need for renewed financial assistance.
Kenya has decided to pursue a new lending arrangement with the International Monetary Fund (IMF) while discontinuing the existing program, which faces challenges due to rising debt-servicing costs. This shift comes as the nation seeks to stabilize its economy, heavily impacted by previous borrowing and government expenditures. Continued fiscal support from the IMF is essential for Kenya to manage its debt obligations effectively.
During a recent visit to Nairobi, Haimanot Teferra, the IMF’s mission chief, confirmed that the IMF had received a formal request for a new program from Kenyan authorities. The ninth review under the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs will not be conducted as previously planned due to an agreement between both parties. These funds, totaling $3.6 billion, have been crucial as Kenya’s economy faced increasing financial strain.
As the news broke, Kenyan dollar bonds experienced a decline, with notable falls in the 2032 and 2048 bond maturities. Under the present program, $3.12 billion had been slated for disbursement, which could have included an imminent release of $480 million had the ninth review proceeded. The IMF’s report did not address details regarding the recently approved Resilience and Sustainability Facility, which previously allocated funds to Kenya.
Kenyan Finance Minister John Mbadi indicated that the government aims to establish a financing program, emphasizing on enhancing domestic revenue collection to meet debt obligations and address essential expenses, including climate change initiatives. Since April 2021, the ongoing ECF/EFF program has faced several hurdles, including public unrest over tax increases and disputes concerning borrowing from the United Arab Emirates.
As of June last year, Kenya’s debt-to-GDP ratio was recorded at 65.7%, significantly surpassing the sustainable threshold of 55%. The nation is not alone in seeking new finance sources, as other African countries like Ivory Coast and Angola are also actively engaging in liability management to ensure they can meet their financing commitments while safeguarding vital public services.
In summary, Kenya is shifting its approach to its partnership with the IMF by seeking a new lending program amid rising debt challenges. The current financing mechanisms under the ECF and EFF are being abandoned as the government focuses on stabilizing its economy and meeting critical financial obligations. This situation underscores the broader trend among several African nations grappling with similar fiscal pressures.
Original Source: www.straitstimes.com
