Kenya plans to negotiate a new agreement with the IMF as its current program ends amid high debt levels. Two-thirds of government revenue is consumed by debt servicing, complicating tax collection. The IMF has confirmed no ninth review will occur, reflecting unmet targets. Economists urge for a favorable tax policy to mitigate potential unrest.
Kenya is poised to negotiate a new agreement with the International Monetary Fund (IMF) as the existing program nears its conclusion. Despite being perceived as an economic beacon in a challenging East African landscape, Kenya faces approximately $80 billion in combined external and domestic debt. This financial burden results in two-thirds of the government’s annual revenue going towards debt servicing, significantly limiting funds for essential services such as health and education, compounded by tax collection difficulties.
The IMF acknowledged receiving a formal request for a new program from Kenyan authorities and is set to resume discussions. Following this announcement, it was confirmed that the planned ninth review of the current $3.6 billion lending program will not proceed, as terms from the 2021 agreement have not been met. Originally, the program was slated to wrap up in April, with an expected final disbursement of $606 million in October.
Economist Churchill Ogutu from the IC group noted that the decision to cancel the ninth review reflects Kenya’s failure to adhere to IMF targets, particularly concerning tax increases. He cautioned that without adherence to past commitments, funding options may remain limited for Kenya. Moving forward, Ogutu suggests that the Kenyan government may need to create a more favorable tax policy environment to prevent protests like those experienced last year due to proposed tax hikes.
In summary, Kenya’s effort to procure a new IMF agreement comes amidst significant debt challenges and prior failures to meet financial targets. The country must now navigate the complexities of tax reforms to ensure financial aid and stability while avoiding civil unrest. The future negotiations will be crucial for Kenya’s economic strategy and governance.
Original Source: www.jacarandafm.com
