Kenya is set to negotiate a new lending agreement with the IMF after halting the current review due to economic strain from high debt-servicing costs. A formal request has been made for a new program, while the existing ECF/EFF facility valued at $3.6 billion expires next month. The country faces a significant debt-to-GDP ratio and seeks to improve revenue collection to handle mounting financial obligations.
Kenya is preparing to negotiate a new lending program with the International Monetary Fund (IMF) following the decision to abandon the latest review of the existing agreement. This adjustment comes as the East African country grapples with mounting economic difficulties stemming from a significant increase in debt-servicing costs due to prior borrowing. Continued financial assistance from the IMF is crucial for Kenya to manage its debt repayments, which have escalated due to heavy government expenditures in recent years.
Haimanot Teferra, the IMF’s mission chief, stated that the Fund has received a formal request from Kenyan authorities for a new program. She noted that the ninth review under the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs will be discontinued. The existing combined ECF/EFF framework is valued at $3.6 billion and is set to expire next month. Following this announcement, Kenyan dollar bonds showed a decline, particularly the 2032 and 2048 maturities, reflecting market reactions to the halted review.
As of October last year, a total of $3.12 billion had already been authorized for disbursement under the current lending agreement. The ninth review was expected to release an additional $480 million. However, both IMF representatives and Kenyan government officials have not clarified the specifics of potential financial implications of the ninth review. The recent IMF statement did not allude to a Resilience and Sustainability Facility that had been approved for Kenya in July 2023, of which $180.4 million had already been disbursed from a total of $541.3 million by the end of October.
While the IMF has acknowledged the new request from Kenya, it remains unclear whether the upcoming program will primarily focus on lending or not. Last month, Finance Minister John Mbadi indicated that the government would be pursuing a financing program. The current ECF/EFF arrangement began in April 2021 but has faced challenges due to anti-tax protests and disagreements regarding additional borrowing from the United Arab Emirates.
To alleviate the debt servicing burden, the Kenyan government is actively seeking new financing sources, aiming to enhance domestic revenue collection while also addressing critical needs such as climate change adaptation. As of June last year, the country’s total debt-to-GDP ratio was reported at 65.7%, significantly exceeding the sustainable threshold of 55%. Moreover, Kenya joins other African nations, such as Ivory Coast and Angola, in seeking new market opportunities to refinance maturing debts and ensure the funding of essential services.
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In summary, Kenya’s decision to seek a new lending program from the IMF comes as the nation confronts rising debt-servicing costs and economic challenges. The halt of the ninth review underscores the need for immediate financial support to manage mounting debts. The country aims to enhance revenue collection while maintaining critical expenditures amid a sustainable debt-to-GDP ratio. Moreover, Kenya’s situation mirrors that of other African nations actively pursuing similar financial strategies.
Original Source: www.straitstimes.com
