Kenya plans to seek a new agreement with the IMF as its current $3.6 billion program ends. The country faces $80 billion in debt, consuming two-thirds of its annual revenue. Protests occurred last year over proposed tax increases, and the IMF has suspended a planned review due to unmet fiscal targets. Economic experts suggest a need for favorable tax policies to avert unrest.
Kenya intends to pursue a new agreement with the International Monetary Fund (IMF) as its current program nears completion. The IMF reported on Monday that this move comes at a time when Kenya, viewed as an economic beacon in East Africa, faces approximately $80 billion in combined external and domestic debt. This debt burden consumes two-thirds of the country’s annual revenue, significantly overshadowing expenditures for health and education, which has made tax increases challenging for the government.
Demonstrations against tax hikes emerged last year in response to President William Ruto’s proposed tax increase. The IMF acknowledged receiving an official request for a new program from Kenyan authorities and indicated it will engage with them in future discussions. The officials confirmed that a previously scheduled ninth review of the current $3.6 billion lending program would not proceed, as the program—which began in 2021—will conclude in April, with a final disbursement of $606 million anticipated for October.
The specifics of the new IMF program remain uncertain. Economist Churchill Ogutu from the IC group noted that the decision to postpone the ninth review is expected due to unmet fiscal targets. He emphasized that the failure to achieve tax increase benchmarks suggests that even a continued pursuit of the program may not yield additional funding. Moving forward, he suggested that Kenyan authorities may need to establish a more favorable tax policy to prevent protests similar to those witnessed last year.
Kenya’s intention to secure a new IMF agreement highlights the challenges posed by its significant debt burden and fiscal constraints. The impending review of the current program has been shelved due to unmet targets, prompting the need for a revised approach to taxation. As the government navigates these economic pressures, establishing a conducive tax environment may be crucial to avoid social unrest while seeking further financial support.
Original Source: www.thenews.com.pk
