Kenya will pursue a new agreement with the IMF as its current program ends amid severe debt issues. With debt impacting revenue, the government struggles to fund essential services like health and education. The IMF will not continue with the planned ninth review due to failure to meet financial targets, prompting discussions for a more adaptable tax strategy moving forward.
The Government of Kenya has announced intentions to seek a new agreement with the International Monetary Fund (IMF) as its current program nears completion. While Kenya is viewed as an economic bright spot within the unstable East African region, it is facing significant challenges, including approximately $80 billion in combined external and domestic debt. Such debt servicing consumes two-thirds of the country’s annual revenue, overshadowing vital sectors such as health and education, amidst difficulties in increasing tax revenues.
Last year’s demonstrations were triggered by a proposal from President William Ruto to raise taxes. On Monday, the IMF confirmed receiving a formal request from Kenyan authorities for a new program, indicating future engagement on this matter. In light of this development, the IMF decided to forgo the planned ninth review of its existing $3.6 billion lending program, which commenced in 2021 and is set to conclude in April, with a final disbursement of $606 million expected in October.
The specific details of the forthcoming IMF program remain unclear. Economic expert Churchill Ogutu from IC group remarked that it is not unexpected for the ninth review to be shelved due to Kenya’s failure to meet previous fiscal targets set by the IMF. He expressed concerns over Nairobi’s inability to implement the required tax increases and mentioned that pursuing the review under the current conditions may hinder funding opportunities. In the future, Ogutu suggested that the Kenyan government could consider adopting a more favorable tax policy environment to mitigate potential unrest similar to that observed in the previous year.
In summary, Kenya is poised to engage with the IMF for a new agreement, prompted by the imminent conclusion of its current program and ongoing fiscal challenges. The high levels of debt servicing are severely impacting the government’s ability to fund critical sectors. The decision to abandon the ninth review reflects unmet fiscal targets, compelling the government to reassess its tax strategies to potentially stabilize the economic situation and prevent further civil discontent.
Original Source: www.jacarandafm.com
