Kenya is abandoning its current IMF programme to pursue a new lending agreement due to economic difficulties caused by rising debt repayment costs. The IMF has been formally approached for negotiations, and the decision has affected Kenyan dollar bonds significantly.
Kenya has decided to pursue a new lending agreement with the International Monetary Fund (IMF) by discontinuing its current program due to challenges from rising debt repayment costs. The country has faced economic pressure requiring extensive government borrowing, prompting the need for additional financial assistance from the IMF to address its escalating debt obligations.
The IMF, through its mission chief Haimanot Teferra, confirmed receiving an official request from Kenyan authorities for a new program, expressing readiness to discuss further. Following a visit to Nairobi, the IMF announced that the ninth review of the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs would be halted, allowing for negotiations on a fresh agreement.
Currently, the ongoing $3.6 billion EFF/ECF arrangement is set to conclude next month, having disbursed $3.12 billion so far. An additional $480 million could have been unlocked if the ninth review had proceeded, but the implications of halting the review remain undisclosed by either party.
The decision has negatively impacted Kenyan dollar bonds, with significant declines noted in the 2032 and 2048 maturities, which fell over 1 cent each, trading at 90.136 cents and 80.173 cents on the dollar, respectively. Some maturities have hit six-month lows as investor confidence wanes.
The IMF’s statement overlooked Kenya’s Resilience and Sustainability Facility, approved in July 2023, of which $180.4 million out of a total $541.3 million had been disbursed by October last year. The specifics of the new program remain uncertain, including whether it will entail direct lending or advisory support.
The Kenyan government continues to navigate economic challenges from anti-tax protests and disputes concerning borrowing, particularly a controversial loan from the United Arab Emirates. To address its debt obligations, Kenya is exploring alternative financing sources, emphasizing enhanced domestic revenue to support critical sectors, including climate adaptation.
Kenya’s debt-to-GDP ratio stood at 65.7% as of June 2023, surpassing the sustainable threshold of 55%. The nation, alongside others such as Ivory Coast and Angola, has issued bonds to refinance maturing debts and maintain essential public expenditures, like healthcare, amidst ongoing financial strain.
Kenya’s shift to negotiate a new lending agreement with the IMF underscores its ongoing struggles with soaring debt and economic challenges. With its current programme now abandoned, the country aims to secure funding solutions while maintaining critical public services. The situation remains fluid as Kenya seeks to stabilize its financial outlook and adhere to sustainable debt levels amidst rising economic pressures.
Original Source: newscentral.africa
