Kenya is collaborating with the IMF to establish a new lending program after abandoning the current one due to mounting debt-servicing costs. The upcoming discussions follow a formal request from the Kenyan government, as the nation seeks to enhance revenue collection and manage the rising debt-to-GDP ratio, which currently exceeds 65%.
Kenya is initiating discussions with the International Monetary Fund (IMF) for a new lending program, discontinuing the existing one due to economic challenges linked to rising debt-servicing costs. Heavy government expenditure has necessitated ongoing support from the IMF to manage accumulated debt repayments effectively.
Following Haimanot Teferra’s statement, the IMF confirmed receiving a formal request from Kenya for a new program, while the current review under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) will not proceed. The combined facility, valued at $3.6 billion, is set to expire soon.
The announcement caused a decline in Kenyan dollar bonds, particularly the 2032 and 2048 maturities, which fell over 1 cent each. The ninth review under the current lending program could have released an additional $480 million, as $3.12 billion had already been approved for disbursement.
The IMF also referenced a previous Resilience and Sustainability Facility, which provided $180.4 million of a total $541.3 million to Kenya. Finance Minister John Mbadi indicated intentions to pursue a financing program.
Initiated in April 2021, the existing ECF/EFF program faced challenges due to protests against tax hikes and disagreements over borrowing from the UAE. The Kenyan government aims to enhance domestic revenue while managing debts, ensuring funds for essential expenditures, including climate change initiatives.
As of June last year, Kenya’s debt-to-GDP ratio was 65.7%, surpassing the sustainable threshold of 55%. The nation is now part of a growing number of African countries seeking funds to address maturing debts and ensure operational stability.
Kenya is moving forward with plans for a new IMF lending program after halting the current one due to economic strains linked to high debt servicing costs. The need for financial support is more pressing as the country addresses its financial challenges and continuing protests against tax measures. As it strives to improve revenue and manage its debt, the situation highlights the country’s pressing economic issues and the necessity for sustainable financing solutions.
Original Source: www.straitstimes.com
